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Title: Corporate Yields and Sovereign Yields

Author(s): Julia Bevilaqua, Galina B Hale and Eric Tallman

Publication Date: January 2020

Keyword(s): bond, crisis and debt

Programme Area(s): International Macroeconomics and Finance

Abstract: We document that positive association between corporate and sovereign cost of funds borrowed on global capital markets weakens during periods of unusually high sovereign yields, when some corporate borrowers are able to issue debt that is priced at lower rates than sovereign debt. This state-dependent sensitivity of corporate yields to sovereign yields has not been previously documented in the literature. We demonstrate that this stylized fact is observed across countries and industries as well as for a given borrower over time. It is not explained by a different composition of borrowers issuing debt during periods of high sovereign yields, by the relationship between corporate and sovereign credit ratings, and only partially explained by financial crises and IMF programs. We propose a simple information model that rationalizes our empirical observations: when sovereign yields are high, corporate yields are less sensitive to sovereign yields

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Bibliographic Reference

Bevilaqua, J, Hale, G and Tallman, E. 2020. 'Corporate Yields and Sovereign Yields'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=14344