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.
We thank seminar participants at the JACF Conference in Honor of Stew Myers, the Harvard Finance lunch, Talinn Demirjian and Jeri Seidman for comments. In addition, we are grateful to Sharat Alankar, Joseph Keith, Ted Keith, Patrick Sissman, and Caroline Hane-Weijman for research assistance. We also thank a number of practitioners for answering our questions about how this market works. Finally, we thank the Q Group for their financial support. The views and opinions expressed do not necessarily reflect those of State Street Corporation or the National Bureau of Economic Research.
Asquith, Paul & Au, Andrea S. & Covert, Thomas & Pathak, Parag A., 2013. "The market for borrowing corporate bonds," Journal of Financial Economics, Elsevier, vol. 107(1), pages 155-182. citation courtesy of