Monetary Policy and Corporate Bond Returns

Guo, Haifeng; Kontonikas, Alexandros; Maio, Paulo

Abstract

We investigate the impact of monetary policy shocks on excess corporate bonds returns. We obtain a significant negative response of bond returns to policy shocks, which is especially strong among low-grading bonds. The largest portion of this response is related to higher expected bond returns (risk premium news), while the impact on expectations of future interest rates (interest rate news) plays a secondary role. However, the interest rate channel is dominant among high-grading bonds and Treasury bonds. Looking at the two components of bond premium news, we find that the dominant channel for high-rating (low-rating) bonds is term premium (credit premium) news.

Citation

Guo, H., Kontonikas, A., & Maio, P. (2020). Monetary Policy and Corporate Bond Returns. The Review of Asset Pricing Studies, 10(3), 441-489. https://doi.org/10.1093/rapstu/raaa005

• Journal Article Type: Article
• Acceptance Date: Mar 23, 2020
• Online Publication Date: Jul 7, 2020
• Publication Date: Oct 1, 2020
• Deposit Date: Apr 16, 2020
• Publicly Available Date: Jul 7, 2022
• Journal: Review of Asset Pricing Studies
• Print ISSN: 2045-9920
• Electronic ISSN: 2045-9939
• Publisher: Society for Financial Studies
• Peer Reviewed: Peer Reviewed
• Volume: 10
• Issue: 3
• Pages: 441-489
• DOI: https://doi.org/10.1093/rapstu/raaa005
• Public URL: https://durham-repository.worktribe.com/output/1266258