Liquidity and Price Pressure in the Corporate Bond Market: Evidence from Mega-bonds

Larger bonds offer greater liquidity, which may reduce their yields. However, they may be difficult to place. We consider the trade-off of liquidity and price pressure. We find that megabonds have high liquidity, as measured by trading volume and frequency, but their yields are not lower. Indeed, these bonds seem to suffer from price pressure. They have more underpricing, their yields fall in the first week of trading, and other bonds issued by the same firm experience a temporary jump in yields. We conclude that firms that raise $1 billion or more split the bond offering across time or by maturity to avoid price pressure.