Thread by @NickTimiraos

New research from Gilchrist, Wei, Yue and Zakrajšek analyzes the impact the Fed's corporate credit backstop had on funding costs for large companies nber.org/papers/w27809

"The announcement ... influenced credit spreads by significantly reducing near-term default risk."

"The benchmark spread for investment-grade U.S. corporate bonds widened nearly 100 basis points—from already elevated levels—over the few days after [the announcement of the CPFF and MMLF] while the corresponding spread for high-yield bonds jumped 180 bps over the same period."

After the announcement of the corporate lending backstop, bonds below the five-year maturity cutoff experience a drop in credit spreads of 70 basis points, relative to investment-grade bonds above the five-year maturity cutoff, during the post-announcement period.

"Moreover, these effects occur relatively quickly—within 14 days of the April 9 announcement—and are long lasting."

"The total effect of the program announcement lowered credit spreads on eligible bonds by 20 basis points relative to ineligible bonds for an average issuer of both types of bonds."

"We consider all bonds issued by companies that were rated as investment grade before March 23 but were downgraded to a notch below investment grade during the subsequent 10 days and hence became SMCCF eligible with the April 9 announcement."

"When compared to the matched sample of ineligible bonds, fallen angels’ eligible bonds experienced a 340 basis point increase in credit spreads during the 10-day period following the March 23 announcement."

"We then show that the April 9 announcement reversed much of this run-up. In particular, credit spreads on newly eligible bonds issued by fallen angels fall 250 basis points in the ten days following the April 9 announcement."