However, once the term premium becomes negative, we hit a corner where the financial constraint no longer binds and the relevant opportunity cost becomes the option to invest in short-term securities or repurchase shares. Baker, Stein, and Wurgler (2003) model an analogous diminishing-returns effect for stock prices and corporate investment.
4  BIS central bankers’ speeches  The corporate-finance example is also consistent with what we have observed in markets in recent months. Issuance of both investment-grade and high-yield bonds has been robust. Indeed, domestic nonfinancial corporate bond issuance is on pace to set a record in 2012, and the speculative-grade segment may also register a new high for the year.