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New York Fed researchers raise concern over riskier corporate bond issuance

Researchers at the Federal Reserve Bank of New York said the large volume of corporate bonds issued with BAA credit ratings may raise financial stability concerns, according to a report published on the regional Fed bank's Liberty Street Economics blog.

In addition, Nina Boyarchenko and Or Shachar, who conducted the research and co-authored the blog post, said the mismatch between AAA-rated and BAA-rated bonds with respect to maturity and firm characteristics makes the spread between the two less useful as an indicator of investors' aversion to credit risk. Historically, a larger BAA–AAA spread indicated investors' diminished willingness to bear credit risk.

The corporate bond market, which totaled $9.2 trillion at the end of 2018, matched the size of the mortgage-backed securities market, according to Boyarchenko and Shachar.