Factors Affecting Credit Spread Of Corporate Bonds In China

Credit spreads reflect the risk of corporate bonds. This paper aims at exploring the key factors that affect credit spreads of corporate bonds in China. On the basis of relative literatures, this paper combines the situation of Chinese corporate bond market to form a summary and analysis of influencing factors on credit spreads. According to the data of treasury bonds and corporate bonds trading on Shanghai Stock Exchange, yield curves are simulated by the method of boot strapping and spline fitting. Furthermore, credit spread series are calculated. This paper takes theoretical factors economic factors, and liquidity factors as explanatory variables to establish econometric model and make regression, in order to find out the important influencing factors and explain how these factors affect credit spread.Theoretical variables are believed to have certain explanation power in China. The empirical results indicate that credit spreads in China are negatively correlated with the risk-free interest rate, which is consistent with the implications of structural models and with the related literatures in the U.S. and Europe. Risk-free interest term structure also has significant effect on credit spreads. Besides risk-free interest and its term structure, the increase of M2, consumer price index and index return of stock market make significant contribution to explain credit spread changes. Although the relationship between these variables and credit spread series is not marked, their linear combination describes macroeconomic situation which has a greater effect on credit spread than each variable itself has.