Finance and Economics Discussion Series (FEDS)
February 2021 (Revised January 2025)
Non-monetary news in Fed announcements: Evidence from the corporate bond market
Michael Smolyansky and Gustavo Suarez
Abstract:
When the Federal Reserve tightens monetary policy, do the prices of riskier assets fall relative to safer assets? Or, do investors interpret policy tightening as a signal that economic fundamentals are stronger than they previously believed, thus leading riskier assets to outperform? We present evidence that the latter of these two forces empirically dominates within the U.S. corporate bond market. Following an unanticipated monetary policy tightening, riskier corporate bonds outperform safer corporate bonds, demonstrating the importance of an informational, or nonmonetary, component within monetary policy announcements.
Keywords: Monetary policy, Corporate bonds, Non-monetary news, Federal Reserve information effect, Reaching for yield
DOI: https://doi.org/10.17016/FEDS.2021.010r1
PDF: Full Paper
Original Paper: PDF | Accessible materials (.zip)
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