Corporate Bonds, Macroeconomic News, and Investor Flows

Abstract

This article examines the impact of macroeconomic announcements on corporate bond prices and investor migrations across various types of bonds over time. In addition, the authors compare the responses of investor-grade bonds and speculative corporate bonds. They find corporate bond responses to be different from those of Treasury bonds. Positive macrosurprises are followed by declining (rising) yields on corporate bonds (Treasuries), implying that investors may be migrating between Treasuries and corporate bonds very rapidly. They also identify that the sensitivity of junk bonds is more pronounced than that of investment-grade bonds. Finally, they document that the behavior of corporate bonds is very similar to that of their equity counterparts in that they exhibit greater sensitivity to negative macroshocks than to positive shocks.