Monetary policy announcement effects on U.S. corporate credit spreads

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Volume Title
School of Business | Master's thesis
Date
2022
Major/Subject
Mcode
Degree programme
Finance
Language
en
Pages
66+14
Series
Abstract
During the last 15 years central banks have tried to stimulate economic output with unprec-edented measures and power, but have they succeeded in facilitating private borrowing for firms? In this thesis, I study the Federal Reserve’s monetary policy announcement effects on large U.S. corporates between 2003 and 2022 through credit default swap (CDS) spreads, to see how the announced measures are reflected in private borrowing costs. The company specific CDS data provides interesting insights to announcement reaction differences between companies with varying creditworthiness, dependence on external finance, and operating industries during different monetary policy regimes. I find that the first two factors have moderate and varying effects on spread changes, while operating industry does not. By separating the monetary policy shock effect from the announcement effect, I also find that the shock effect is likely dominated by an opposite effect from Fed revealing new information on its economic outlook, causing both the spreads and underlying Treasury yields to react contrary to monetary policy transmission theories.
Description
Thesis advisor
Nyberg, Peter
Keywords
credit spreads, the Federal Reserve, monetary policy effects, credit default swaps, monetary policy shocks
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