Credit in a Crisis: Effects of the Fed's Corporate Bond Market Intervention

Abstract

We examine the effects of the Fed's Secondary Market Corporate Credit Facilities (SMCCF) on both firm-level outcomes and bond market conditions. Using secondary bond market transactions matched to corporate balance sheet data, we find borrowers did not raise real investment but increased their share of long-term debt. However, this effect is driven primarily by a flight-to-safety channel rather than the differential impact from SMCCF-eligibility. Moreover, using a bond-level difference-in-differences specification where each eligible bond is matched to an ineligible bond in terms of credit-rating, firm size and industry, we find substantial improvement in liquidity (bid-ask spreads) and cost of borrowing (bond yield). The program also improved bond valuations but the effect was economically small. Overall, our results indicate the Fed's intervention helped restore corporate bond market stability but had relatively smaller effect at the firm-level.