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Benchmarking the effects of the Fed's Secondary Market Corporate Credit Facility using Yankee bonds

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  • Xu, Hui
  • Pennacchi, George G.

Abstract

We use foreign issuers' “Yankee” bonds to benchmark how the Federal Reserve's Secondary Market Corporate Credit Facility (SMCCF) impacted U.S. issuers' bonds of the same credit rating and maturity. The SMCCF reduced the relative yield spreads of short-maturity U.S. investment-grade bonds, which were targeted by the facility. Yet it also decreased the relative yield spreads of U.S. long-maturity AA- and A-rated bonds. Moreover, relative spreads of U.S. BB-rated bonds rose, indicating that the SMCCF harmed these bonds. Using various illiquidity and default risk measures, we find that the SMCCF affected both the relative illiquidity and default risk of U.S. bonds.

Suggested Citation

  • Xu, Hui & Pennacchi, George G., 2023. "Benchmarking the effects of the Fed's Secondary Market Corporate Credit Facility using Yankee bonds," Journal of Financial Markets, Elsevier, vol. 64(C).
    • Handle: RePEc:eee:finmar:v:64:y:2023:i:c:s1386418123000034
    DOI: 10.1016/j.finmar.2023.100805
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    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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