Systemic risk in corporate bond markets: Thematic vs. Exogenous recessions

Financial crises differ not only in severity but also in the channels through which risk propagates. This paper employs a risk classification framework distinguishing between thematic recessions – slow-building crises arising from structural imbalances – and exogenous recessions, triggered by sudden external shocks. Using corporate bond market data from the UK and US, we apply distribution-sensitive econometric techniques to trace how risk drivers evolve across the spectrum of bond risk. Each recession is segmented into three phases – pre-, during, and post-recession – and tested independently. The findings show that recession type, timing, and national context critically shape systemic vulnerabilities. Risk drivers operate in strongly non-linear ways, yet UK and US markets remain tightly interconnected, highlighting persistent cross-border co-movement. These insights demonstrate how recession characteristics shape systemic fragility, advance systemic risk analysis and risk governance, and offer actionable guidance for regulators, policymakers, and risk managers.