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Creditable bonds’ multifunctional roles during the COVID-19 pandemic

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  • Wang, Qiyu
  • Yang, Junhong
  • Chong, Terence Tai-Leung

Abstract

The study examines the multiple roles of investment-grade corporate bonds (rated by Moody’s as DAAA and DBAA) in the pandemic. Firstly, they outperformed stock indices (such as SPX and other market indices), delivering the highest daily returns and Sharpe ratios across sub-periods of the pandemic. We uncover the patterns of return changes. Secondly, either Pearson’s correlation or dynamic conditional correlation (DCC) confirms their function as a safe haven after gold. Thirdly, at the onset of the outbreak in 2020, relief policies worldwide boosted stock index returns. However, this uplift was short-lived. Even with a decline in yields, investment-grade bonds consistently outperformed stock indices. From March 2022, the Federal Reserve initiated a series of federal funds rate increases, positively affecting bond yields. Furthermore, we delved into the effects of the time lags of relief policies and interest rate hikes. Our findings revealed these policies’ nuanced and asymmetric impacts, which help explain the observed price dynamics. In conclusion, our research addressed the roles of creditable bonds during the COVID-19 crisis. However, high-credit bonds consistently yielded higher daily risk-adjusted returns and held unique positions during the pandemic.

Suggested Citation

  • Wang, Qiyu & Yang, Junhong & Chong, Terence Tai-Leung, 2025. "Creditable bonds’ multifunctional roles during the COVID-19 pandemic," The North American Journal of Economics and Finance, Elsevier, vol. 76(C).
    • Handle: RePEc:eee:ecofin:v:76:y:2025:i:c:s1062940824002730
    DOI: 10.1016/j.najef.2024.102348
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    More about this item

    Keywords

    COVID-19 health pandemic; Performance; Safe haven asset; Relief policies; Federal funds rate rise;
    All these keywords.

    JEL classification:

    • F30 - International Economics - - International Finance - - - General
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative

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