The Market for Borrowing Corporate Bonds

This paper describes the market for borrowing corporate bonds using a comprehensive dataset from a major lender. The cost of borrowing corporate bonds is comparable to the cost of borrowing stock, between 10 and 20 basis points per year. Factors that increase borrowing costs are loan size, percentage of inventory lent, rating, and borrower identity. Trading strategies based on cost or amount of borrowing do not yield excess returns. Bonds with corresponding CDS contracts are more actively lent than those without. Finally, the 2007 Credit Crunch did not affect average borrowing cost or loan volume, but increased borrowing cost variance.