Credit Spread Changes and Monetary Policy Surprises: The Evidence from the Fed Funds Futures Market


  • Xiaoneng Zhu

    Corresponding author
    • Xiaoneng Zhu is an Assistant Professor at Chinese Academy of Finance and Development, Central University of Finance and Economics, Beijing, China
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  • I am indebted for constructive comments to Robert Webb (editor), an anonymous referee, Shahidur Rahman, Christopher Bent, Dennis Alba, Jing Wang, Shicheng Jiang, Baolian Sheng, as well as to seminar participants at some universities. Funding from the Ministry of Education of China (10YJCZH251), and Shanghai Pujiang Foundation is acknowledged. All the remaining errors are solely my responsibility.

Correspondence author, Chinese Academy of Finance and Development, Central University of Finance and Economics, South Xueyuan Road #39, Beijing 100081, China. Tel: +86 10 6228 8675; Fax: +86 10 6228 8779, e-mail:


This study analyzes the impact of monetary policy actions on credit spreads of various rating categories and maturities, using federal funds futures to distinguish between anticipated and unanticipated changes in the federal funds rate. Two proxies for monetary policy shocks are the surprise change to the current federal funds target rate (target surprise) and the shock to the future path of policy (path surprise). Although credit spreads consistently respond to the target surprises, they rarely respond to the path surprises after controlling for the effect of the target surprises. The way that credit spreads respond to the target surprises changes across the maturities of corporate bonds. In addition, the empirical analysis indicates that the effect of the target surprises on credit spreads is more significant in economic recessions than in economic booms. © 2012 Wiley Periodicals, Inc. Jrl Fut Mark 33:103–128, 2013