Bond Underwriting in the U.S.: Conflicts in Plain Sight

By Paul Vella
Gennaio 16, 2020
Research

Reading Time: < 1 minute

Key Points

Fideres’s research on bond market manipulation has been published by the American Bar Association.
80% of issued bonds are underwritten by just Six dealer-banks, giving them the market power to manipulate prices.
One manifestation of this power is the undervaluation of initial bond listings. Dealer-banks may preference themselves and their clients with lower bond prices at the initial listing of a bond, which the market subsequently corrects.
In the case of municipal bonds, we observe that, on average, prices increased by 163 basis points after issuance between 2006 and 2015, compared to underwriter’s own bonds which increased by just 55 basis points after issuance.
We estimate municipal bond issuers will wind up paying approximately $25 billion more in interest over the life off their bonds because of this mispricing.

You can read our full research here:

Underwriting in the US Bond Markets – Why the Status Quo Poses Risks to Competition

Paul Vella

Paul joined Fideres after completing a BSc in Economic History at the London School of Economics and Political Science, where he was also Trustee of the Student Union and President of the Music Society. At Fideres, Paul leads our discrimination practice, analysing cases of algorithmic and indirect discrimination, in addition to his work in the Competition team, where he is a project manager. On the Competition team, Paul’s work spans financial, digital, and healthcare markets – with his research published by the ABA. Paul completed his MSc. Economics at City, University of London part-time while simultaneously managing the expert work for multiple antitrust class-actions in the Northern District of California.

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