Bid-Ask Spreads and the Liquidity of International Bonds

Abstract

This study contributes to the literature on bond market liquidity by investigating the level and variability of bid-ask spreads for a sample of international bonds issued by sovereigns, corporates, banks, and supranational issuers. A model of the spread indicates that credit rating, price volatility, and issue size are important determinants. Pound sterling-denominated bonds have wider spreads than U.S. dollar-denominated bonds, and corporate bonds have wider spreads than sovereign bonds.