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The bond agio premium

Author

Listed:
  • Jochen Güntner
  • Benjamin Karner

    (Economics, Johannes Kepler University Linz)

Abstract

Bonds issued in high and low interest-rate environments often list at different prices despite very similar characteristics. From a risk-neutral investor's perspective, higher current prices imply higher losses in case of default, which must be compensated, if markets are efficient. We call this the "bond agio premium" and use constituent-level bond index data for January 1997 through December 2022 to show that -- holding issuer and maturity fixed -- it is reflected by bond prices. Higher premia for lower rating buckets imply that different estimates for US dollar- and euro-denominated bonds are consistent with different fractions of sovereign and corporate debt.

Suggested Citation

  • Jochen Güntner & Benjamin Karner, 2023. "The bond agio premium," Economics working papers 2023-13, Department of Economics, Johannes Kepler University Linz, Austria.
    • Handle: RePEc:jku:econwp:2023-13
    Note: English
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    File URL: http://www.econ.jku.at/papers/2023/wp2313.pdf
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    References listed on IDEAS

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    More about this item

    Keywords

    Bond agio premium; Bond pricing; Empirical asset pricing; Fixed income factor investing;
    All these keywords.

    JEL classification:

    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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