The Importance of Sovereign Bond Benchmarks for Corporate Debt Issuance: Mind the Gap

51 Pages Posted: 24 Feb 2019 Last revised: 7 Oct 2020

See all articles by Sjoerd van Bekkum

Sjoerd van Bekkum

Erasmus University

Bruce D. Grundy

University of Melbourne

Patrick Verwijmeren

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Date Written: October 7, 2020

Abstract

Sovereign bond benchmarks are important determinants of corporate bond issuance and maturity. We show that by providing benchmark rates, long-maturity government issues complement the issuance of similar-maturity corporate issues. Government and corporate bond issues are also substitutes and more long-term corporate bonds are issued when sovereign alternatives are in short supply. However, the substitution weakens when sovereign bonds fail to provide a precise benchmark. Sovereign debt and its maturity play an important role in capital market development with sovereign bond issues that increase a country’s maximum maturity preceding increases in the maximum maturity of corporate issues.

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

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

Suggested Citation

van Bekkum, Sjoerd and Grundy, Bruce D. and Verwijmeren, Patrick, The Importance of Sovereign Bond Benchmarks for Corporate Debt Issuance: Mind the Gap (October 7, 2020). Available at SSRN: https://ssrn.com/abstract=3330391 or http://dx.doi.org/10.2139/ssrn.3330391

Sjoerd Van Bekkum

Erasmus University ( email )

P.O. Box 1738
Rotterdam, NL 3062 PA
Netherlands

Bruce D. Grundy

University of Melbourne ( email )

Faculty of Economics & Commerce
Department of Finance
Victoria, 3010
Australia
+61 3 8344 9083 (Phone)
+61 3 8344 6914 (Fax)

Patrick Verwijmeren (Contact Author)

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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