The Importance of Sovereign Reference Rates for Corporate Debt Issuance

Abstract

We show that sovereign bond benchmarks are important determinants of corporate bond issuance and maturity. Sovereign bond issues that increase a country’s maximum maturity are followed by increases in the maximum maturity of corporate issues. Our results suggest that by providing benchmark rates, long-maturity government issues complement the issuance of similar-maturity corporate issues. Sovereign and corporate bond issues can also be substitutes, but we find that this substitutability requires the availability of a high-quality sovereign bond benchmark. Our findings highlight the role that sovereign debt and its maturity play in capital market development Show more