*The authors thank an anonymous referee, Darius Miller and seminar participants at the Federal Reserve Bank of New York, the conference ‘Global Market Integration and Financial Crises’ jointly organized by the Center for Asian Financial Markets at HKUST and the International Review of Finance for useful comments, and Sarita Subramanian for her research assistance. The views stated herein are those of the authors and are not necessarily those of the Federal Reserve Bank of New York, or the Federal Reserve System.
Has the US Bond Market Lost its Edge to the Eurobond Market?*
Article first published online: 19 MAY 2010
© 2010 The Authors. Journal compilation © International Review of Finance Ltd. 2010
International Review of Finance
Special Issue: FINANCIAL CRISES AND GLOBAL MARKET INTEGRATION: PART II
Volume 10, Issue 2, pages 149–183, June 2010
How to Cite
PERISTIANI, S. and SANTOS, J. A. C. (2010), Has the US Bond Market Lost its Edge to the Eurobond Market?. International Review of Finance, 10: 149–183. doi: 10.1111/j.1468-2443.2010.01111.x
- Issue published online: 19 MAY 2010
- Article first published online: 19 MAY 2010
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.