News Sentiment and Corporate Bond Yields

By Svetlana Borovkova & Zhiyu Zhang / October 2022

How company-specific news affect bonds issued by that company? This is the question we answer in this paper.

Using Refinitiv News Analytics and an extensive dataset of over 6000 corporate bonds of large US companies, we show that increasing positive sentiment of company-related news leads to a decrease in bond yields, indicating higher investor confidence. When sentiment deteriorates, this affects bond yields to a larger extent, meaning that, as in equities, more credence is given to negative news by bond market participants.

We employ regression models to demonstrate these effects on a company level, and show that companies with lower credit ratings are more likely to be affected by changes in news sentiment. Furthermore, simple sentiment-based bond trading strategies show improved performance over the bond benchmark. Finally, we note that news sentiment can be used as an effective risk overlay, to avoid losses on bond portfolios.