Liquidity and Price Pressure in the Corporate Bond Market: Evidence from Mega-Bonds

66 Pages Posted: 30 Jun 2016 Last revised: 2 Jul 2019

See all articles by Jean Helwege

Jean Helwege

UC Riverside

Liying Wang

University of Nebraska at Lincoln

Date Written: June 27, 2019

Abstract

Larger bonds offer greater liquidity, which should reduce their yields. A simple way for firms to reduce financing costs is to sell bonds with large face values. We find that mega-bonds are more liquid than smaller bonds. However, offering yield spreads on mega-bonds are not lower and are higher than spreads of bonds issued by similar companies. Our evidence suggests that the beneficial aspects of greater liquidity are counter-balanced by the negative effects of price pressure. This may explain why most firms prefer to split their offerings by maturity or across time rather than issue one large bond.

Keywords: Corporate bonds, Liquidity, Price pressure, Mega-bonds, Offering yield spreads

JEL Classification: G10; G12; G32

Suggested Citation

Helwege, Jean and Wang, Liying, Liquidity and Price Pressure in the Corporate Bond Market: Evidence from Mega-Bonds (June 27, 2019). Available at SSRN: https://ssrn.com/abstract=2801840 or http://dx.doi.org/10.2139/ssrn.2801840

Jean Helwege (Contact Author)

UC Riverside ( email )

900 University Ave.
Anderson Hall
Riverside, CA 92521
United States
9518274284 (Phone)

Liying Wang

University of Nebraska at Lincoln ( email )

Lincoln, NE 68588
United States

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