Does Governing Law Affect Bond Spreads?
Controlling for bond and issuer characteristics, bond spreads are expected to be equal across different legal jurisdictions, and differences are expected to disappear through arbitrage. However, an analysis of 435 U.S. dollar–denominated bonds issu...
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World Bank, Washington, DC
2016
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| Online Access: | http://documents.worldbank.org/curated/en/2016/10/26868025/governing-law-affect-bond-spreads http://hdl.handle.net/10986/25308 |
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okr-10986-253082021-04-23T14:04:29Z Does Governing Law Affect Bond Spreads? Ratha, Dilip De, Supriyo Kurlat, Sergio bond spreads development finance emerging markets sovereign ratings governing law investor protection liquidity Controlling for bond and issuer characteristics, bond spreads are expected to be equal across different legal jurisdictions, and differences are expected to disappear through arbitrage. However, an analysis of 435 U.S. dollar–denominated bonds issued by 53 emerging market sovereigns during 1990-2015 reveals that after the financial crisis of 2008, the launch spread of sovereign bonds issued under U.K. law has been higher than those issued under U.S. law, by 130 basis points for BB+ bonds and 175 basis points for B- bonds. This effect was not significant for investment grade bonds. On average, bonds issued under U.K. law had weaker ratings and shorter tenors post-crisis. The post-crisis impact of governing law on sovereign bond spreads is not explained by collective action clauses, or first-time bond issuances. Instead, the difference seems to be related to the perception that U.S. law offers stronger investor protection, and that the investor base for bonds issued under U.S. law is larger than that for bonds issued under U.K. law. The difference in spreads persists in the secondary market even after 180 days, perhaps because of the lack of liquidity, as investors tend to buy and hold these more attractive bonds on a longer term basis. 2016-11-01T17:08:18Z 2016-11-01T17:08:18Z 2016-10 Working Paper http://documents.worldbank.org/curated/en/2016/10/26868025/governing-law-affect-bond-spreads http://hdl.handle.net/10986/25308 English en_US Policy Research Working Paper;No. 7863 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper United Kingdom United States |
| repository_type |
Digital Repository |
| institution_category |
Foreign Institution |
| institution |
Digital Repositories |
| building |
World Bank Open Knowledge Repository |
| collection |
World Bank |
| language |
English en_US |
| topic |
bond spreads development finance emerging markets sovereign ratings governing law investor protection liquidity |
| spellingShingle |
bond spreads development finance emerging markets sovereign ratings governing law investor protection liquidity Ratha, Dilip De, Supriyo Kurlat, Sergio Does Governing Law Affect Bond Spreads? |
| geographic_facet |
United Kingdom United States |
| relation |
Policy Research Working Paper;No. 7863 |
| description |
Controlling for bond and issuer
characteristics, bond spreads are expected to be equal
across different legal jurisdictions, and differences are
expected to disappear through arbitrage. However, an
analysis of 435 U.S. dollar–denominated bonds issued by 53
emerging market sovereigns during 1990-2015 reveals that
after the financial crisis of 2008, the launch spread of
sovereign bonds issued under U.K. law has been higher than
those issued under U.S. law, by 130 basis points for BB+
bonds and 175 basis points for B- bonds. This effect was not
significant for investment grade bonds. On average, bonds
issued under U.K. law had weaker ratings and shorter tenors
post-crisis. The post-crisis impact of governing law on
sovereign bond spreads is not explained by collective action
clauses, or first-time bond issuances. Instead, the
difference seems to be related to the perception that U.S.
law offers stronger investor protection, and that the
investor base for bonds issued under U.S. law is larger than
that for bonds issued under U.K. law. The difference in
spreads persists in the secondary market even after 180
days, perhaps because of the lack of liquidity, as investors
tend to buy and hold these more attractive bonds on a longer
term basis. |
| format |
Working Paper |
| author |
Ratha, Dilip De, Supriyo Kurlat, Sergio |
| author_facet |
Ratha, Dilip De, Supriyo Kurlat, Sergio |
| author_sort |
Ratha, Dilip |
| title |
Does Governing Law Affect Bond Spreads? |
| title_short |
Does Governing Law Affect Bond Spreads? |
| title_full |
Does Governing Law Affect Bond Spreads? |
| title_fullStr |
Does Governing Law Affect Bond Spreads? |
| title_full_unstemmed |
Does Governing Law Affect Bond Spreads? |
| title_sort |
does governing law affect bond spreads? |
| publisher |
World Bank, Washington, DC |
| publishDate |
2016 |
| url |
http://documents.worldbank.org/curated/en/2016/10/26868025/governing-law-affect-bond-spreads http://hdl.handle.net/10986/25308 |
| _version_ |
1764458923761336320 |