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Non-monetary news in Fed announcements: Evidence from the corporate bond market

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Abstract

When the Federal Reserve tightens monetary policy, do the prices of riskier assets fall relative to safer assets? Or, do investors interpret policy tightening as a signal that economic fundamentals are stronger than they previously believed, thus leading riskier assets to outperform? We present evidence that the latter of these two forces empirically dominates within the U.S. corporate bond market. Following an unanticipated monetary policy tightening, riskier corporate bonds outperform safer corporate bonds, demonstrating the importance of an informational, or non-monetary, component within monetary policy announcements.

Suggested Citation

  • Michael Smolyansky & Gustavo A. Suarez, 2025. "Non-monetary news in Fed announcements: Evidence from the corporate bond market," Finance and Economics Discussion Series 2021-010r1, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:100026
    DOI: 10.17016/FEDS.2021.010r1
    Note: Revision
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    More about this item

    Keywords

    Monetary policy; Corporate bonds; Non-monetary news; Federal Reserve information effect; Reaching for yield;
    All these keywords.

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading

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