Has the U.S. Bond Market Lost its Edge to the Eurobond Market?
International Review of Finance, Forthcoming
38 Pages Posted: 10 Feb 2010
Date Written: February 9, 2010
The growth of the European financial markets, together with the new, stricter regulations on the U.S. financial markets, has spurred a debate over the competitiveness of the U.S. financial markets. In this paper, we contribute to this debate by investigating the relative competitiveness of the U.S. bond market over the last ten years. In the early 1990s, the gross spread in the U.S. bond market were significantly lower than in the Eurobond market. While this spread continued to decline in the U.S. bond market, it declined at an even faster rate in the Eurobond market, to the point of eliminating the wide cost differential that existed between the two markets in the early 1990s. These findings are robust and suggest that the relative costs of bond underwriting declined in the Eurobond market. We also find that U.S. firms are increasingly opting to issue their bonds in the Eurobond market, and that this relocation is partly driven by the decline in the relative gross spreads in the European bond market. This finding adds support to our conclusion that the cost of bond underwriting declined faster in the Eurobond market, reinforcing the view that the U.S. bond market is facing a greater challenge from the Eurobond market.
Keywords: Bonds, gross spreads, credit spreads, Eurobond market, U.S. bond market
JEL Classification: G15, G24, G32
Suggested Citation: Suggested Citation