Anatomy of Corporate Credit Spreads: The Great Recession vs. COVID-19

We compare the evolution of corporate credit spreads during the Great Recession and the COVID-19 pandemic. The two crises featured increases of similar magnitudes in the median and cross-sectional dispersion of credit spreads, but the pandemic was short-lived and different sectors were affected. The micro-data reveal larger differences between the two episodes: the Great Recession featured an increase in the across-firm dispersion, and leverage was an important predictor of credit spreads. Differently, the COVID-19 crisis displayed a larger increase in within-firm dispersion, and funding liquidity was a more important predictor of movements in spreads. These findings suggest that, at the corporate level, the Great Recession was primarily a solvency crisis, while COVID-19 was a liquidity crisis.