Nick Timiraos Profile picture
Sep 14, 2020 8 tweets 2 min read Read on X
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."

• • •

Missing some Tweet in this thread? You can try to force a refresh
 

Keep Current with Nick Timiraos

Nick Timiraos Profile picture

Stay in touch and get notified when new unrolls are available from this author!

Read all threads

This Thread may be Removed Anytime!

PDF

Twitter may remove this content at anytime! Save it as PDF for later use!

Try unrolling a thread yourself!

how to unroll video
  1. Follow @ThreadReaderApp to mention us!

  2. From a Twitter thread mention us with a keyword "unroll"
@threadreaderapp unroll

Practice here first or read more on our help page!

More from @NickTimiraos

Oct 4
Using a three-month average, payroll growth for August was revised up to +140K from +116K, and payroll growth in September was +186K Image
The unemployment rate dropped back to 4.1% (to the second decimal-stans out there, 4.05%) back to where it was in June, before the July report that triggered the Sahm rule and increased alarm about labor-market softness. Image
After rising off of low levels last year, the share of permanent job losers has been stable so far this year.

Sept: 1.00%
Aug: 1.00%
July: 1.00%
June: 0.98%
May: 1.05%
Apr: 1.05%
Mar: 0.99%
Feb: 1.03% Image
Read 4 tweets
Sep 30
Powell in the Q&A at NABE: The upward revisions of GDI were "quite interesting"

That GDI wasn't as low as once thought "removes a downside risk to the economy"

The upward revision to the savings rate does the same thing. "That suggests spending can continue at a healthy level"
Powell: There's still an unresolved tension between consumption data, which has been good, and the employment data, which has shown a cooling trend of late.

The labor market may give a better real-time picture. GDP doesn't predict downturns as well as labor data.
Powell's executive summary from the marginally better news on consumption from last week's NIPA revisions: "That's not going to stop us from looking really carefully at the labor market data."
Read 4 tweets
Jul 30
A cheat sheet for the July Fed meeting

• The big question is where the committee and chair sets the bar for a September cut.

• The cleanest signal probably comes from Powell's press conference because it's much easier to convey nuance there, but...
wsj.com/economy/centra…
• Don't sleep on the FOMC statement. It's important.

While Powell's opening press conference statement likely aims to reflect the committee's views, the policy statement is what actually gets workshopped and voted on.

Hints could be dropped in any of the first 3 paragraphs Image
Look at briefing materials that go to policymakers before FOMC meetings and read the transcripts to see how extensively these changes are debated.

The Fed chair/staff come up with three drafts: Dovish ("Alternative A"), a middle ground ("Alt B") and Hawkish ("Alt C")

Dec 2018:


Image
Image
Image
Image
Read 7 tweets
Apr 30
The ECI rose on a sequential basis.

Private sector compensation growth was +1.1% in Q1 vs +0.9% in Q4

Because the Q1 '24 gain was slightly less than the Q1 '23 increase (+1.2%), the year-over-year rate of compensation growth edged down to slightly less than 4.1%
Image
Image
The ECI is seen inside the Fed as the highest-quality measure of compensation growth

Wages and salaries for private sector workers excluding incentive paid occupations was +1.3% in Q1 (vs +0.7% in Q4 2023 and +1.5% in Q1 2023)

The Y/Y rate fell to 4.2% from 4.3% in Q4
Image
Image
Compensation for all civilian workers is running slightly higher, potentially reflecting an interval of higher "catch-up" pay for state and local government workers
Image
Image
Read 4 tweets
Jan 28
The Fed is set to retire its tightening bias at its policy meeting this week.

Officials have a first-class problem—inflation fell faster than they expected—but it poses a conundrum nevertheless: How soon and fast do you dial back restrictive policy?

wsj.com/economy/centra…
There's a case for delaying cuts until mid-year or beyond that goes like this: If this is really such a restrictive policy, why is the economy doing so well?

Yes, real rates have been rising, but real incomes are also picking up as inflation comes down.

Image
Image
Image
The case for cutting sooner, notes former Kansas City Fed President Esther George, is that the labor market at turning points "looks like it’s not too bad, and then it goes south quickly."

“We made a very aggressive tightening" that leaves policy well above neutral, she said.
Image
Image
Read 4 tweets
Jan 16
Fed governor Chris Waller: Rate cuts are coming into view but the process should be “carefully calibrated and not rushed.”

As long as growth is fine, “I see no reason to move as quickly or cut as rapidly” as the Fed has in past cutting cycles.
Image
Image
This is a clear pivot from Waller: “From now on, the setting of policy needs to proceed with more caution to avoid over-tightening”

But but but … the Fed’s goal is sustainable 2% inflation. “That goal cannot be achieved for just a moment in time.” Image
Waller takes a bit of a victory lap on his analysis of the Beveridge curve co-authored with Andrew Figura from May 2022.

That analysis had earned caustic criticism from Larry Summers who said it contained “misleading conclusions” by suggesting a path for immaculate disinflation Image
Read 4 tweets

Did Thread Reader help you today?

Support us! We are indie developers!


This site is made by just two indie developers on a laptop doing marketing, support and development! Read more about the story.

Become a Premium Member ($3/month or $30/year) and get exclusive features!

Become Premium

Don't want to be a Premium member but still want to support us?

Make a small donation by buying us coffee ($5) or help with server cost ($10)

Donate via Paypal

Or Donate anonymously using crypto!

Ethereum

0xfe58350B80634f60Fa6Dc149a72b4DFbc17D341E copy

Bitcoin

3ATGMxNzCUFzxpMCHL5sWSt4DVtS8UqXpi copy

Thank you for your support!

Follow Us!

:(