Market conditions impact credit spreads, affecting firm risk and economic stability.
Market conditions, like GDP growth and investor sentiment, affect credit spreads. When GDP grows, credit spreads decrease, but when GDP growth is volatile, credit spreads increase. High investor sentiment and low systematic jump risk lead to lower credit spreads. Firms with high cash flow volatility have higher credit spreads. During economic expansions, firms with high cash flow betas have lower credit spreads, but this relation disappears during economic recessions.