Corporate-Bond Yields and Spreads

Juan Sampieri and Andy Sparks

March 16, 2021

Market participants are facing the conundrum that investment-grade corporate-bond spreads in the U.S. and eurozone are now tighter than their pre-pandemic levels, despite negative cumulative GDP growth. One possible explanation is that investors believe governments and central banks will not allow significant disruption in corporate bonds. After the onset of the pandemic, the Federal Reserve and Treasury Department announced the Primary and Secondary Market Corporate Credit Facilities — programs designed to stabilize the corporate-bond and loan markets. Similarly, the European Central Bank increased its purchases of corporate bonds, and the European Commission established the Pandemic Emergency Purchase Programme, which includes a provision to purchase corporate bonds.

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Euro spreads are relative to the German-government curve.