Corporate Loan Spreads and Economic Activity

Anthony Saunders, Alessandro Spina, Sascha Steffen*, Daniel Streitz

*Corresponding author for this work

Research output: Contribution to journalJournal articleResearchpeer-review

Abstract

We investigate the predictive power of loan spreads for forecasting business cycles, specifically focusing on more constrained, intermediary-reliant firms. We introduce a novel loan-market-based credit spread constructed using secondary corporate loan-market prices over the 1999 to 2023 period. Loan spreads significantly enhance the prediction of macroeconomic outcomes, outperforming other credit-spread indicators. We also explore the underlying mechanisms and differentiate between borrower fundamentals and financial frictions. Evidence suggests that supply-side frictions are a decisive factor in the forecasting ability of loan spreads.
Original languageEnglish
JournalThe Review of Financial Studies
Volume38
Issue number2
Pages (from-to)507–546
Number of pages40
ISSN0893-9454
DOIs
Publication statusPublished - Feb 2025

Bibliographical note

Epub ahead of print. Published online: 06 December 2024.

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