The Covid pandemic in the market: infected, immune and cured bonds

In this paper, I analyze the developments in the euro-area primary bond market during the Covid-19 pandemic. The most surprising effect is the significant increase in the share of investment-grade bonds from 15% to 40%. Over the first phases of the crisis (from mid-February to mid-March), these bonds enjoyed a negative premium of 60 to 80 basis points. However, the premium disappeared when the market conditions further deteriorated. There is also evidence that the firms most exposed to the changes in the business model brought about by the pandemic experienced an increase in the cost of issuance of around 30 basis points. By contrast, there is no evidence that supports the existence of an increased cost for companies headquartered in countries with weak public finances, or evidence of a premium in favor of green bonds that were expected to be the backbone of a possible “green recovery”.