Determinants of Sub-Sovereign Bond Yield Spreads: The Role of Fiscal Fundamentals and Federal Bailout Expectations

Subnational borrowing and bailouts: When the federal government looks at the votes (differently) and its borrowing matters

“…The financial markets generally charge risk premiums on the bond yields of states' public debt with respect to that issued by federal governments. The main factors driving this are related to the default risk, which can be partially counterweighted by the probability of bailout or, alternatively, by the fiscal capacity of the SNG, and the liquidity risk, which is associated with the size of this particular market (Beck et al, 2017; Schuknecht et al, 2009). In this paper, we are not interested in the risk premiums themselves, but just in how their consideration might affect the interactions between levels of government outlined so far.…”

Fact or fiction: Implicit government guarantees in China’s corporate bond market

“…Implicit government guarantees may exist because of the close relationship between the bond issuer and the government, the importance of the bond issuer, or the main use of the raised funds. Research on implicit government guarantees has aimed to improve the understanding of a variety of topics in debt financing, including the too-big-to-fail (TBTF) phenomenon in banks (Balasubramnian and Cyree 2011;Acharya, Anginer, and Warburton, 2016;Gao, Liao, and Wang, 2018), the role of state shareholdings in bond pricing for state-owned enterprises (Borisova et al, 2015), and sub-national government bond pricing in the presence of implicit support from the central government (Sola and Palomba, 2016;Beck et al, 2017;Feld et al, 2017).…”