Has the U.S. Bond Market Lost its Edge to the Eurobond Market?
Federal Reserve Bank of New York
João A. C. Santos
Federal Reserve Bank of New York; New University of Lisbon - Nova School of Business and Economics
The growth of the European financial markets, together with the new, stricter regulations on the U.S. financial system, has spurred a debate about the competitiveness of the U.S. financial markets. In this paper, we compare underwriting costs in the U.S. bond market and the Eurobond market over the last ten years and investigate whether recent changes in the U.S. bond market's relative competitiveness have affected U.S. firms' choice of bond issuing market. Our results show that ten years ago, it was less expensive to issue in the U.S. bond market than in the Eurobond market and that underwriting costs have declined continuously in the U.S. market over the last decade. Importantly, we also find that these costs decreased at an even faster rate in the Eurobond market to the point of eliminating the competitive wedge of the U.S. bond market. These findings are robust to bond-, firm-, and underwriter-specific characteristics and do not appear to be driven by sample selection, as they hold when we consider a sample of issuers that is both constant over time and common to both markets. Finally, we find that U.S. firms are increasingly opting to issue their bonds in the Eurobond market instead of the U.S. market, and that this relocation toward the Eurobond market is partly caused by the decline in the relative competitiveness of the U.S. bond market.
Number of Pages in PDF File: 49
Keywords: Bonds, gross spreads, credit spreads, Eurobond market, U.S. bond market
JEL Classification: G15, G24, G32working papers series
Date posted: March 21, 2008
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