In an extension of Merton’s seminal 1974 framework, we construct a structural credit risk model that unveils the factor structure underpinning both stock and corporate bond returns. Our model identifies three pivotal risk factors: aggregate asset risk, its stochastic volatility, and shifts in interest rates. While both equity and debt are positively tethered to aggregate asset risk, they diverge in their sensitivities to volatility and interest rate movements. Employing a non-parametric, regression-based approach, we empirically validate the model’s cross-sectional predictions for factor sensitivities. Remarkably, the model not only surpasses its benchmarks in explanatory prowess but also enables us to find consistent pricing of these risk factors in both markets, reinforcing its integrative power.