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Has the US Bond Market Lost its Edge to the Eurobond Market?

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  • STAVROS PERISTIANI
  • JOÃO A. C. SANTOS

Abstract

The growth of the European financial markets, together with the new, stricter regulations on the US financial markets, has spurred a debate over the competitiveness of the US financial markets. In this paper, we contribute to this debate by investigating the relative competitiveness of the US bond market over the last 10 years. In the early 1990s, the gross spread in the US bond market were significantly lower than in the Eurobond market. While this spread continued to decline in the US bond market, it declined at an even faster rate in the Eurobond market, to the point of eliminating the wide cost differential that existed between the two markets in the early 1990s. These findings are robust and suggest that the relative costs of bond underwriting declined in the Eurobond market. We also find that US firms are increasingly opting to issue their bonds in the Eurobond market, and that this relocation is partly driven by the decline in the relative gross spreads in the Eurobond market. This finding adds support to our conclusion that the cost of bond underwriting declined faster in the Eurobond market, reinforcing the view that the US bond market is facing a greater challenge from the Eurobond market.

Suggested Citation

  • Stavros Peristiani & João A. C. Santos, 2010. "Has the US Bond Market Lost its Edge to the Eurobond Market?," International Review of Finance, International Review of Finance Ltd., vol. 10(2), pages 149-183, June.
    • Handle: RePEc:bla:irvfin:v:10:y:2010:i:2:p:149-183
    DOI: 10.1111/j.1468-2443.2010.01111.x
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    Cited by:

    1. Resnick, Bruce G., 2012. "Investor yield and gross underwriting spread comparisons among U.S. dollar domestic, Yankee, Eurodollar, and global bonds," Journal of International Money and Finance, Elsevier, vol. 31(2), pages 445-463.
    2. Cetorelli, Nicola & Peristiani, Stavros, 2013. "Prestigious stock exchanges: A network analysis of international financial centers," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1543-1551.
    3. Dimic, Nebojsa & Orlov, Vitaly & Piljak, Vanja, 2022. "First offshore bond issuances and firm valuation," International Review of Financial Analysis, Elsevier, vol. 83(C).
    4. Karpavičius, Sigitas & Yu, Fan, 2016. "Should interest expenses be tax deductible?," Economic Modelling, Elsevier, vol. 54(C), pages 100-116.
    5. Nebosja Dimic & Vitaly Orlov, 2018. "Internationalization and firm valuation: New evidence from first offshore bond issuances of US firms," Working Papers on Finance 1803, University of St. Gallen, School of Finance.
    6. Massa, Massimo & Žaldokas, Alminas, 2014. "Investor base and corporate borrowing: Evidence from international bonds," Journal of International Economics, Elsevier, vol. 92(1), pages 95-110.
    7. Vortelinos, Dimitrios I. & Lakshmi, Geeta, 2015. "Market risk of BRIC Eurobonds in the financial crisis period," International Review of Economics & Finance, Elsevier, vol. 39(C), pages 295-310.
    8. Hornuf, Lars & Engert, Andreas, 2013. "Can Network Effects Impede Optimal Contracting in Debt Securities?," VfS Annual Conference 2013 (Duesseldorf): Competition Policy and Regulation in a Global Economic Order 79867, Verein für Socialpolitik / German Economic Association.
    9. Juan Carlos Gozzi & Ross Levine & Maria Soledad Martinez Peria & Sergio L. Schmukler, 2012. "How Firms Use Domestic and International Corporate Bond Markets," NBER Working Papers 17763, National Bureau of Economic Research, Inc.
    10. Engert, Andreas & Hornuf, Lars, 2018. "Market standards in financial contracting: The Euro’s effect on debt securities," Journal of International Money and Finance, Elsevier, vol. 85(C), pages 145-162.
    11. Miyakoshi, Tatsuyoshi & Shimada, Junji & Li, Kui-Wai, 2023. "A network analysis on country and financial center attractiveness: Evidence from Asian economies, 2001–2018," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 418-432.
    12. Carbó-Valverde, Santiago & Cuadros-Solas, Pedro J. & Rodríguez-Fernández, Francisco, 2021. "The impact of lending relationships on the choice and structure of bond underwriting syndicates," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 74(C).

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