Date of Award

Spring 2022




Jan Kregel, PhD.


Covid highlighted the financial vulnerability of both small and large businesses in the U.S economy. In response, the Federal Reserve announced the creation of the secondary market corporate credit facilities (SMCCF) on March 23, 2020, with the aim of providing liquidity to US firms through bond financing. The goal was to build a portfolio of bonds that attempted to achieve a wide, diversified market index of US corporate bonds. When looking at the composition of the SMCCF broad market index and percentage (%) of par value from the federal reserve bank of New York, firms from the transportation sector received one of the lowest funding out of any other sector. The purpose of this thesis is to determine how the corporate bond announcements and eventual purchases aided the transportation sector’s bond spreads and default risk probability. My fixed effect panel data regression model indicates that the March 23rd announcements temporarily raised bond spreads for transportation sector companies, owing to their low credit bond ratings and initial ineligibility when the program was introduced. The SMCCF was expanded on April 9th, and lesser-rated bonds were made eligible, dramatically reducing spreads for transportation sector issuers, as some of the bonds had yields trading lower than the US treasury. The collapse of employment, travel restrictions, interminable shutdowns, and the ongoing epidemic all put a halt to the operations of certain transportation firms while enabling others to continue operating at a reduced capacity. A comparison of spreads within transportation sector companies that participated in the SMCCF reveals that firms that operated at some capacity and received the most credit facility funding (such as BNSF) traded at lower and more stable yields than firms whose line of business was completely shut down (like Delta airlines). The actual purchase of the bonds also aided the overall reduction of the spreads but not as much as the announcement effect. These results show that the Fed’s action was helpful in providing liquidity to the transportation sector of the CCF.

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Open Access

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Economics Commons