The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The Outreach and Education function engages, empowers and educates the Second District communities that the Bank serves, especially civic leaders, students, educators, small business owners, policymakers and the general public. It furthers the Bank's commitment to the region by listening to the communities we serve and leveraging our unique attributes to positively impact school and university programs, as well as analysis and research.
This paper is the first to document the presence of a private premium in public bonds. We find that spreads are 30 basis points higher for public bonds of private companies than for bonds of public companies, even after controlling for observable differences, including rating, financial performance, industry, bond characteristics, and issuance timing. The estimated private premium increases to 40-56 basis points when a propensity matching methodology is used or when we control for fixed issuer effects. In contrast, in the same sample, there is no difference in pricing in private debt (syndicated loans). Despite the premium pricing, bonds of private companies are no more likely to decline in price, to default, or to be downgraded than are public bonds. We conclude that the costs of information may be different across segments of the debt market.