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Corporate Loan Spreads and Economic Activity

Author

Listed:
  • Anthony Saunders
  • Alessandro Spina
  • Sascha Steffen
  • Daniel Streitz

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.

Suggested Citation

  • Anthony Saunders & Alessandro Spina & Sascha Steffen & Daniel Streitz, 2025. "Corporate Loan Spreads and Economic Activity," The Review of Financial Studies, Society for Financial Studies, vol. 38(2), pages 507-546.
    • Handle: RePEc:oup:rfinst:v:38:y:2025:i:2:p:507-546.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhae084
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    More about this item

    Keywords

    E23; E44; G20;
    All these keywords.

    JEL classification:

    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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