Which factors affect corporate bonds pricing? Empirical evidence from eurobonds primary market spreads

The question of which factors determine corporate bonds pricing is investigated by analysing the spreads of eurobonds issued by major G-10 companies during the 1991-2001 period. Three main results emerge from the analysis. First, bond ratings appear as the most important determinant of yield spreads, with investors' reliance on rating agencies judgments increasing over time. Second, the primary market efficiency and the expected secondary market liquidity are not relevant explanatory factors of spreads cross-sectional variability. Finally, rating agencies adopt a different, 'through the cycle', evaluation criteria of default risk with respect to the forward looking one adopted by bond investors.