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Benchmarking the Effects of the Fed’s Secondary Market Corporate Credit Facility Using Yankee Bonds

Research output: Working paper

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Benchmarking the Effects of the Fed’s Secondary Market Corporate Credit Facility Using Yankee Bonds. / Xu, Hui; Pennacchi, George.
Lancaster: Lancaster University, Department of Accounting and Finance, 2021.

Research output: Working paper

Harvard

Xu, H & Pennacchi, G 2021 'Benchmarking the Effects of the Fed’s Secondary Market Corporate Credit Facility Using Yankee Bonds' Lancaster University, Department of Accounting and Finance, Lancaster.

APA

Xu, H., & Pennacchi, G. (2021). Benchmarking the Effects of the Fed’s Secondary Market Corporate Credit Facility Using Yankee Bonds. Lancaster University, Department of Accounting and Finance.

Vancouver

Xu H, Pennacchi G. Benchmarking the Effects of the Fed’s Secondary Market Corporate Credit Facility Using Yankee Bonds. Lancaster: Lancaster University, Department of Accounting and Finance. 2021 Aug 21.

Author

Xu, Hui ; Pennacchi, George. / Benchmarking the Effects of the Fed’s Secondary Market Corporate Credit Facility Using Yankee Bonds. Lancaster : Lancaster University, Department of Accounting and Finance, 2021.

Bibtex

@techreport{ba4cf8cac0d343febf7aaebac3f88ca2,
title = "Benchmarking the Effects of the Fed{\textquoteright}s Secondary Market Corporate Credit Facility Using Yankee Bonds",
abstract = "We use “Yankee” bonds, which are dollar-denominated bonds issued by foreign corporations but traded in the US, to benchmark the effects of the Federal Reserve{\textquoteright}s Secondary Market Corporate Credit Facility (SMCCF). The SMCCF was established to purchase short-term, investment-grade bonds of US, but not foreign, corporations. Our tests apply a difference-in-differences technique to bond subsamples sorted by short- and long- maturities and AA, A, BBB, and BB credit ratings. Consistent with the SMCCF{\textquoteright}s objective, we find that its announcement reduced the yield spreads on short-maturity US investment-grade bonds relative to the yield spreads on similarly-rated short-maturity Yankee bonds. Yet our results show that it also led to relatively lower yield spreads on US long-maturity AA- and A-rated bonds. Moreover, yield spreads on US BB-rated bonds actually rose relative to the spreads on their Yankee counterparts, indicating the SMCCF harmed these excluded bonds. Using the Amihud measure and bond-CDS basis as proxies for illiquidity, our analysis also shows that the SMCCF influenced both the illiquidity and default risk components of US bond yield spreads.",
keywords = "Covid-19, SMCCF, Corporate Bonds",
author = "Hui Xu and George Pennacchi",
year = "2021",
month = aug,
day = "21",
language = "English",
publisher = "Lancaster University, Department of Accounting and Finance",
type = "WorkingPaper",
institution = "Lancaster University, Department of Accounting and Finance",

}

RIS

TY - UNPB

T1 - Benchmarking the Effects of the Fed’s Secondary Market Corporate Credit Facility Using Yankee Bonds

AU - Xu, Hui

AU - Pennacchi, George

PY - 2021/8/21

Y1 - 2021/8/21

N2 - We use “Yankee” bonds, which are dollar-denominated bonds issued by foreign corporations but traded in the US, to benchmark the effects of the Federal Reserve’s Secondary Market Corporate Credit Facility (SMCCF). The SMCCF was established to purchase short-term, investment-grade bonds of US, but not foreign, corporations. Our tests apply a difference-in-differences technique to bond subsamples sorted by short- and long- maturities and AA, A, BBB, and BB credit ratings. Consistent with the SMCCF’s objective, we find that its announcement reduced the yield spreads on short-maturity US investment-grade bonds relative to the yield spreads on similarly-rated short-maturity Yankee bonds. Yet our results show that it also led to relatively lower yield spreads on US long-maturity AA- and A-rated bonds. Moreover, yield spreads on US BB-rated bonds actually rose relative to the spreads on their Yankee counterparts, indicating the SMCCF harmed these excluded bonds. Using the Amihud measure and bond-CDS basis as proxies for illiquidity, our analysis also shows that the SMCCF influenced both the illiquidity and default risk components of US bond yield spreads.

AB - We use “Yankee” bonds, which are dollar-denominated bonds issued by foreign corporations but traded in the US, to benchmark the effects of the Federal Reserve’s Secondary Market Corporate Credit Facility (SMCCF). The SMCCF was established to purchase short-term, investment-grade bonds of US, but not foreign, corporations. Our tests apply a difference-in-differences technique to bond subsamples sorted by short- and long- maturities and AA, A, BBB, and BB credit ratings. Consistent with the SMCCF’s objective, we find that its announcement reduced the yield spreads on short-maturity US investment-grade bonds relative to the yield spreads on similarly-rated short-maturity Yankee bonds. Yet our results show that it also led to relatively lower yield spreads on US long-maturity AA- and A-rated bonds. Moreover, yield spreads on US BB-rated bonds actually rose relative to the spreads on their Yankee counterparts, indicating the SMCCF harmed these excluded bonds. Using the Amihud measure and bond-CDS basis as proxies for illiquidity, our analysis also shows that the SMCCF influenced both the illiquidity and default risk components of US bond yield spreads.

KW - Covid-19

KW - SMCCF

KW - Corporate Bonds

M3 - Working paper

BT - Benchmarking the Effects of the Fed’s Secondary Market Corporate Credit Facility Using Yankee Bonds

PB - Lancaster University, Department of Accounting and Finance

CY - Lancaster

ER -