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A macro-financial analysis of the corporate bond market

Author

Listed:
  • Hans Dewachter

    (National Bank of Belgium; Center for Economic Studies, University of Leuven and CESifo)

  • Leonardo Iania

    (Louvain School of Management)

  • Wolfgang Lemke

    (European Central Bank)

  • Marco Lyrio

    (Insper Institute of Education and Research)

Abstract

We assess the contribution of economic and financial factors in the determination of euro area corporate bond spreads over the period 2001-2015. The proposed multi-market, no-arbitrage affine term structure model is based on the methodology proposed by Dewachter, Iania, Lyrio, and Perea (2015). We model jointly the ‘risk-free curve’, measured by overnight index swap (OIS) rates, and the corporate yield curves for two rating classes (A and BBB). The model includes four spanned and six unspanned factors. We find that, in general, both economic (real activity and inflation) and financial factors (proxying risk aversion, flight to liquidity and general financial market stress) play a significant role in the determination of the spanned factors and hence in the dynamics of the risk-free yield curve and corporate bond spreads. Across the risk-free OIS curve, macroeconomic and financial factors are each responsible on average for explaining 30 and 65 percent of yield variation, respectively. For A-and BBB-rated corporate debt, the selected financial variables explain on average 50 percent of the variation in corporate spreads during the last decade.

Suggested Citation

  • Hans Dewachter & Leonardo Iania & Wolfgang Lemke & Marco Lyrio, 2018. "A macro-financial analysis of the corporate bond market," Working Paper Research 360, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:201810-360
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    Cited by:

    1. is not listed on IDEAS
    2. De Backer, Bruno & Dewachter, Hans & Iania, Leonardo, 2021. "Macrofinancial information on the post-COVID-19 economic recovery: Will it be V, U or L-shaped?," Finance Research Letters, Elsevier, vol. 43(C).
    3. Alena Audzeyeva & Xu Wang, 2023. "Fundamentals, real-time uncertainty and CDS index spreads," Review of Quantitative Finance and Accounting, Springer, vol. 61(1), pages 1-33, July.

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    Keywords

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    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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