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Liquidity in U.S. fixed income markets: a comparison of the bid-ask spread in corporate, government and municipal bond markets
Sarkar, Asani; Chakravarty, Sugato (1999)
We examine the determinants of the realized bid-ask spread in the U.S. corporate, municipal and government bond markets for the years 1995 to 1997, based on newly available transactions data. Overall, we find that liquidity is an important determinant of the realized bid-ask spread in all three markets. Specifically, in all markets, the realized bid-ask spread decreases in the trading volume. Additionally, risk factors are important in the corporate and municipal markets. In these markets, the bid-ask spread increases in the remaining-time-to maturity of a bond. The corporate bond spread also ...
Staff Reports , Paper 73

Report
The slope of the credit yield curve for speculative-grade issuers
Helwege, Jean; Turner, Christopher M. (1997)
Many theoretical bond pricing models predict that the slope of the credit yield curve facing highly leveraged firms is negative. Previous empirical research by Sarig and Warga (1989) and Fons (1994) confirms this view of high yield bonds. We show that these results largely owe to sample selection bias associated with the debt maturity choice. When the credit quality of the issuer is held constant, as in the case of matched bond samples, the typical credit yield curve facing speculative-grade issuers is upward-sloping.
Research Paper , Paper 9725

Working Paper
Monetary policy and the corporate bond market: How important is the Fed information effect?
Smolyansky, Michael; Suarez, Gustavo A. (2021-02-16)
Does expansionary monetary policy drive up prices of risky assets? Or, do investors interpret monetary policy easing as a signal that economic fundamentals are weaker than they previously believed, prompting riskier asset prices to fall? We test these competing hypotheses within the U.S. corporate bond market and find evidence strongly in favor of the second explanation—known as the "Fed information effect". Following an unanticipated monetary policy tightening (easing), returns on corporate bonds with higher credit risk outperform (underperform). We conclude that monetary policy surprises ...
Finance and Economics Discussion Series , Paper 2021-010

Report
Event risk premia and bond market incentives for corporate leverage
Zimmer, Steven A. (1990)
Research Paper , Paper 9028

Report
Did liquidity providers become liquidity seekers?
Shachar, Or; Choi, Jaewon (2013-10-01)
The misalignment between corporate bond and credit default swap (CDS) spreads (i.e., CDS-fbond basis) during the 2007-09 financial crisis is often attributed to corporate bond dealers shedding off their inventory, right when liquidity was scarce. This paper documents evidence against this widespread perception. In the months following Lehman?s collapse, dealers, including proprietary trading desks in investment banks, provided liquidity in response to the large selling by clients. Corporate bond inventory of dealers rose sharply as a result. Although providing liquidity, limits to arbitrage, ...
Staff Reports , Paper 650

Working Paper
The Green Corporate Bond Issuance Premium
Caramichael, John; Rapp, Andreas (2022-06-02)
We study a global panel of green and conventional bonds to assess the borrowing cost advantage at issuance for green bond issuers. We find that, on average, green bonds have a yield spread that is 8 basis points lower relative to conventional bonds. This borrowing cost advantage, or greenium, emerges as of 2019 and coincides with the growth of the sustainable asset management industry following EU regulation. Within this context, we find that the greenium is linked to two proxies of demand pressure, bond oversubscription and bond index inclusion. Moreover, while green bond governance appears ...
International Finance Discussion Papers , Paper 1346

Working Paper
Dealer costs and customer choice
Dyskant, Lucas; Silva, André F.; Sultanum, Bruno (2023-12)
We introduce a model to explain how an increase in intermediation costs leads to structural changes in the corporate bond market. We state three facts on corporate bond markets after the Dodd-Frank act: (1) an increase in customer liquidity provision through prearranged matches, (2) a paradoxical decrease in measured illiquidity, and (3) an increase in the illiquidity component on the yield spread. Investors take longer to finish a trade and require higher illiquidity premium even though measured illiquidity decreased. We introduce a search and matching model which explains these facts. It ...
Working Paper , Paper 23-13

Report
Multiple ratings and credit standards: differences of opinion in the credit rating industry
Packer, Frank; Cantor, Richard (1995)
This paper tests whether the tendency of third rating agencies to assign higher ratings than Moody's and Standard & Poor's results from more lenient standards or sample selection bias. More lenient standards might result from incentives to satisfy issuers who are, in fact, the purchasers of the ratings. Selection bias might be important because issuers that expect a low rating from a third agency are unlikely to request one. Our analysis of a broad sample of corporate bond ratings at year-end 1993 reveals that, although sample selection bias appears important, it explains less than half the ...
Research Paper , Paper 9527

Report
Underwriter price support and the IPO underpricing puzzle
Ruud, Judith S. (1991)
Research Paper , Paper 9117

Working Paper
Optimal portfolio allocation in a world without Treasury securities
Bomfim, Antúlio N. (2001)
If current projections of future budget surpluses materialize, investing in Treasury securities--an asset class with which investors have long been familiar--could eventually become a thing of the past. In this paper, I examine the extent to which investors' portfolio allocation decisions are likely to be affected by the retirement of all federal government debt. The analysis suggests only small effects for most investors, especially, as is effectively the case for many institutional investors, when a no short sale constraint is in place. Under such circumstances, highly conservative ...
Finance and Economics Discussion Series , Paper 2001-11

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