The Development of Domestic Bond Markets

Amanda Dos Santos

No 9he6d_v1, SocArXiv from Center for Open Science

Abstract: This paper documents the importance of government debt in facilitating the development of corporate bond markets. Using micro-level data from Brazil, I exploit variation in the supply of government bonds at different maturities to estimate the causal effect of additional government debt outstanding on firm issuance decisions. I find that at early stages of development, government debt complements corporate debt, implying that additional government debt outstanding at a given maturity causes firms to issue more. These effects ultimately increase long-term debt issuance and investment across firms, with stronger responses from companies with higher asset duration. However, as markets mature and government debt levels rise, I document a shift from complementarity to substitution. This evidence can be rationalized through government debt reducing corporate pricing uncertainty by providing pricing benchmarks and facilitating price discovery in bond markets.

Date: 2026-02-02
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Persistent link: https://EconPapers.repec.org/RePEc:osf:socarx:9he6d_v1

DOI: 10.31219/osf.io/9he6d_v1

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