The Causal Effect of the Fed's Corporate Credit Facilities on Eligible Issuer Bonds

We study the effects of the Federal Reserve's Corporate Credit Facilities (CCFs) that were launched in early 2020 amid significant volatility in the U.S. corporate bond market. We find that the initial announcement of the CCFs on March 23, 2020 benefited issuers eligible for direct primary and secondary support from the CCFs more than ineligible issuers. In contrast, we find that ineligible issuer bond spreads tightened more in the subsequent announcement of the CCF expansion on April 9, 2020. Inconsistent with the CCF eligibility criteria, most research has used issue ratings, rather than issuer ratings, to identify eligible bonds; we document that this results in a sizeable bias when estimating the April 9 effect and trace the source of this bias. We also provide an estimate of the potential (counterfactual) improvement in bond spreads ineligible issuers would have experienced, had they been eligible for the CCFs. Analysis of the channels through which the CCFs operated suggests that the liquidity channel was more important than the default risk channel. We also find that the start of the CCF's purchases of ETFs on May 12, 2020 and bonds on June 16, 2020 had a smaller effect on bond spreads, though the latter was more impactful.