Does Governing Law Affect Bond Spreads?

Ratha, Dilip ; De, Supriyo ; Kurlat, Sergio

World Bank, Washington, DC

关键词: bond spreads;    development finance;    emerging markets;    sovereign ratings;    governing law;   

DOI  :  10.1596/1813-9450-7863
RP-ID  :  WPS7863

学科分类：社会科学、人文和艺术（综合）

来源: World Bank Open Knowledge Repository

【 摘 要 】

Controlling for bond and issuercharacteristics, bond spreads are expected to be equalacross different legal jurisdictions, and differences areexpected to disappear through arbitrage. However, ananalysis of 435 U.S. dollar–denominated bonds issued by 53emerging market sovereigns during 1990-2015 reveals thatafter the financial crisis of 2008, the launch spread ofsovereign bonds issued under U.K. law has been higher thanthose issued under U.S. law, by 130 basis points for BB+bonds and 175 basis points for B- bonds. This effect was notsignificant for investment grade bonds. On average, bondsissued under U.K. law had weaker ratings and shorter tenorspost-crisis. The post-crisis impact of governing law onsovereign bond spreads is not explained by collective actionclauses, or first-time bond issuances. Instead, thedifference seems to be related to the perception that U.S.law offers stronger investor protection, and that theinvestor base for bonds issued under U.S. law is larger thanthat for bonds issued under U.K. law. The difference inspreads persists in the secondary market even after 180days, perhaps because of the lack of liquidity, as investorstend to buy and hold these more attractive bonds on a longerterm basis.