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Foreign-currency bonds: currency choice and the role of uncovered and covered interest parity

  • Habib, Maurizio Michael
  • Joy, Mark
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Using count-data techniques, this paper studies the determinants of currency choice in the issuance of foreign-currency-denominated bonds. In particular, we investigate whether bond issuers choose their issuance currency in order to exploit the borrowing-cost savings associated with deviations from uncovered and covered interest parity. Our sample includes issuers from both the public sector and private sector. Our findings show that the choice of issuance currency is sensitive to deviations from uncovered interest parity but insensitive, in general, to deviations from covered interest parity. Furthermore, the influence of deviations from uncovered interest parity is stronger for financial issuers than for nonfinancial issuers. JEL Classification: F31, F36, G14, G15, G32

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File URL: http://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp947.pdf
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Paper provided by European Central Bank in its series Working Paper Series with number 0947.

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Date of creation: Oct 2008
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Handle: RePEc:ecb:ecbwps:20080947
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