Liquidity and Price Pressure in the Corporate Bond Market: Evidence from Mega-Bonds
66 Pages Posted: 30 Jun 2016 Last revised: 2 Jul 2019
Date Written: June 27, 2019
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: Suggested Citation