Impact of the COVID-19 Pandemic on the U.S. Corporate Bond Market

We analyze the price and liquidity effects in the U.S. corporate bond market caused by the Covid-19 crisis. We carefully consider the different impact of social distancing measures on firms. We find significant effects, i.e., bonds of firms that are more affected by these measures show a much stronger increase in yield spreads by 40.9 bp. Controlling for these effects, we employ standard credit and liquidity risk factors to explain yield spread changes. In addition, we explicitly consider the rollover risk channel. Although, we find a highly significant impact of liquidity measures as discussed in the previous literature, our results show that for firms highly affected by social distancing measures credit risk is the dominant factor.