Why Did the Recent Oil Price Declines Affect Bond Prices of Non‑Energy Companies?
Oil prices plunged 65 percent between July 2014 and December of the following year. During this period, the yield spread—the yield of a corporate bond minus the yield of a Treasury bond of the same maturity—of energy companies shot up, indicating increased credit risk. Surprisingly, the yield spread of non‑energy firms also rose even though many non‑energy firms might be expected to benefit from lower energy‑related costs. In this blog post, we examine this counterintuitive result. We find evidence of a liquidity spillover, whereby the bonds of more liquid non‑energy firms had to be sold to satisfy investors who withdrew from bond funds in response to falling energy prices.
A Closer Look at the Federal Reserve’s Securities Lending Program
Monetary Policy Transmission before and after the Crisis
Revisiting the Case for International Policy Coordination
Prompted by the U.S. financial crisis and subsequent global recession, policymakers in advanced economies slashed interest rates dramatically, hitting the zero lower bound (ZLB), and then implemented unconventional policies such as large-scale asset purchases. In emerging economies, however, the policy response was more subdued since they were less affected by the financial crisis. As a result, capital flows from advanced to emerging economies increased markedly in response to widening interest rate differentials. Some emerging economies reacted by adopting measures to slow down capital inflows, acting under the presumption that these flows were harmful. This type of policy response has reignited the debate over how to moderate international spillovers.
Borrowing, Lending, and Swapping Collateral in GCF Repo®
Why Dealers Trade in GCF Repo®
Understanding the Interbank GCF Repo® Market
Lower Oil Prices and U.S. Economic Activity
After a period of stability, oil prices started to decline in mid-2015, and this downward trend continued into early 2016.