3 Issuing costs of state guaranteed bonds - Financial Risk and ...

3 Issuing costs of state guaranteed bonds
Figure 17: Incremental reduction of issuing cost through use of state guarantee of particular
guarantors (n=683)
58
Reduction in issuing cost due to SG
-50 0 50 100 150 200 250 300
ES SI NL AT GB DK DE FR SE IE PT
Member State
Mean 95% upper/lower CI
Note: Reduction in issuing costs is measured by the z-spread (for fixed rate bonds) and the zero discount margin (for non-fixed rate
bonds) based on the CBBT pricing source. Reduction in issuing costs for each guarantor is expressed relative to the average reduction
across all guarantors based on the methodology suggested in Suits (1984). Any Member States not shown omitted due to multicollinearity.
In regard to the issue of financial market fragmentation, the main observations to make are as
follows.
Firstly, the majority of guarantor-specific effects relative to the average effect are not statistically
significant (as the majority of lines cross the y-axis). On average, this means that differences across
guarantors generally did not have an impact on issuing costs.
Secondly, we see that the majority of 95% upper and lower confidence intervals are in a similar
range, bar the cases of Ireland and Portugal, which also supports the view that differences across
guarantors were not material.
3.5.6 Impacts by bond rating
Thus far, we have found that state guarantees had the baseline impact of reducing issuing costs by
approximately 33bps, on average (section 3.5.3). However, we also found that the distribution of
impacts varied widely (section 3.5.4) and that this distribution is not explained by guarantor-level
factors (section 3.5.5).
This section considers bond-level factors in order to understand the wide distribution of impacts of
state guarantees. Specifically, we consider the possibility of a rating upgrade effect. That is, the