Corporate Yields and Sovereign Yields

Julia Bevilaqua, Galina B. Hale, Eric Tallman

Chapter in NBER book NBER International Seminar on Macroeconomics 2019 (2020), Kristin Forbes and Pierre-Olivier Gourinchas, organizers
Conference held June 27–28, 2019
Published in May 2020 by Elsevier, Journal of International Economics, volume 124
in NBER Book Series NBER International Seminar on Macroeconomics

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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Document Object Identifier (DOI): 10.1016/j.jinteco.2020.103304