The Private Premium in Public Bonds

56 Pages Posted: 9 Mar 2012 Last revised: 22 Mar 2014

See all articles by Anna Kovner

Anna Kovner

Federal Reserve Bank of New York

Chenyang (Jason) Wei

Federal Reserve Banks - Federal Reserve Bank of Philadelphia

Multiple version iconThere are 2 versions of this paper

Date Written: March 24, 2014

Abstract

This paper is the first to document the presence of a private premium in public bonds. We find that spreads are 30 basis points higher for public bonds of private companies than for bonds of public companies, even after controlling for observable differences, including rating, financial performance, industry, bond characteristics, liquidity and issuance timing. The estimated private premium increases to 40 to 56 basis points when a propensity matching methodology is used or when we control for fixed issuer effects. In contrast, in the same sample, there is no difference in pricing in private debt (syndicated loans). Despite the premium pricing, bonds of private companies are no more likely to decline in price, default or be downgraded than are public bonds. We conclude that the cost of information may be different across segments of the debt market.

Keywords: bonds, private, private equity

JEL Classification: G12, G14, G32

Suggested Citation

Kovner, Anna and Wei, Chenyang, The Private Premium in Public Bonds (March 24, 2014). FRB of New York Staff Report No. 553 (revised), Available at SSRN: https://ssrn.com/abstract=2018441 or http://dx.doi.org/10.2139/ssrn.2018441

Anna Kovner (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Chenyang Wei

Federal Reserve Banks - Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

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