Commonality in Credit Spread Changes: Dealer Inventory and Intermediary Distress

Abstract Two intermediary-based factors—a corporate bond dealer inventory measure and a broad intermediary distress measure—explain more than 40$\%$ of the puzzling common variation in credit spread changes beyond canonical structural factors. A simple model with partial market segmentation accounts for factors’ explanatory power delivers three further implications empirical support. First, whereas sorts on risk-related variables produce monotonic loading patterns factors, non-risk-related no pattern. Second, comoves corporate-credit assets only, both non-corporate-credit assets. Third, dealers’ responds to (instrumented) sales by institutional investors.