Abstract
Investment grade corporations issue debt across a wide spectrum of maturities. A significant proportion of the debt issued by these firms has maturities greater than 20 years. In this paper we argue that an important determinant of these long-term debt issues is gap filling behavior, in which high grade issuers fill gaps in the supply of long-term government bonds. Using a large sample of individual corporate loans and bond issues by U.S. companies between 1987 and 2009, we find evidence of gap filling behavior only in the very long end of the maturity spectrum where the required risk capital makes it difficult for arbitrageurs to smooth out supply shocks.
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