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Does geopolitical risk raise or lower corporate credit spreads?

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  • Huang, He
  • Qiu, Yancheng

Abstract

Using transaction-level U.S. corporate bond data, we document a significant negative relationship between geopolitical risk changes and credit spreads, driven by a disproportionate rise in cash-flow-matched Treasury yields. This finding cannot be explained by macroeconomic factors or uncertainty channels.

Suggested Citation

  • Huang, He & Qiu, Yancheng, 2025. "Does geopolitical risk raise or lower corporate credit spreads?," Economics Letters, Elsevier, vol. 247(C).
    • Handle: RePEc:eee:ecolet:v:247:y:2025:i:c:s0165176525000382
    DOI: 10.1016/j.econlet.2025.112201
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    References listed on IDEAS

    as
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    7. Gurkaynak, Refet S. & Sack, Brian & Wright, Jonathan H., 2007. "The U.S. Treasury yield curve: 1961 to the present," Journal of Monetary Economics, Elsevier, vol. 54(8), pages 2291-2304, November.
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    9. Jing-Zhi Huang & Ming Huang, 2012. "How Much of the Corporate-Treasury Yield Spread Is Due to Credit Risk?," The Review of Asset Pricing Studies, Society for Financial Studies, vol. 2(2), pages 153-202.
    10. Bussy, Adrien & Zheng, Huanhuan, 2023. "Responses of FDI to geopolitical risks: The role of governance, information, and technology," International Business Review, Elsevier, vol. 32(4).
    11. Nils Friewald & Florian Nagler, 2019. "Over‐the‐Counter Market Frictions and Yield Spread Changes," Journal of Finance, American Finance Association, vol. 74(6), pages 3217-3257, December.
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    More about this item

    Keywords

    Credit spreads; Treasury yields; Geopolitical risk;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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