Complementarity of Sovereign and Corporate Debt Issuance: Mind the Gap

Abstract

We investigate the relation between sovereign and corporate bond issuance. Sovereign bond issues that increase a country’s maximum maturity are followed by increases in the maximum maturity of corporate issues. Our results point to issuance complementarities based on the benchmarking of corporate bonds to sovereign bonds. Sovereign and corporate bond issues are also substitutes, but substitutability requires the availability of a high-quality sovereign bond benchmark. By adding to existing theories focusing on substitutability, our findings highlight the role that the maturity of sovereign debt plays in capital market development.

Keywords: Corporate bond issuance, Sovereign bond issuance, Bond maturity, Sovereign benchmark, Reference rates, Gap Filling

JEL Classification: G12, G15, G18, G32, H63