Study Of The Influences Related To Macroeconomic Factors On Creadit Spreads Of Corporate Bonds

In recent years, instead of borrowing from bank, an increasingnumber of Chinese companies issue bonds to finance themselves, andalso corporate bond has become one of the most important investmenttargets. Therefore, people nowadays start to pay attention to the pricing ofcorporate bonds. Due to the default risk of corporate bonds, investorsusually require a higher interest rate than treasure bonds. The gapbetween these two interest rates is credit spread, which is the key factor inbond pricing. According to some research in America and other countries,systemic risk which mainly caused by macroeconomic factors plays amore important role in the determination of credit spreads than defaultrisk. In this paper, we try to figure out which macroeconomic factors havesignificant impact on bond credit spreads and what the influencemechanism is. We choose China’s interbank bond market between2007and2012as our target. We analyze the fluctuation of bond credit spreadsand conclude some investment guidance according to the changes ofmacroeconomic factors.This paper analyzes the influences of four macroeconomic factors:inflation, economic growth, macro liquidity and risk-free interest rates on credit spreads. By means of descriptive statistics, regression of thestatistical models and Merrill Lynch Investment clock theory, we havecome to the following conclusions:First, despite of the rapid development of China’s bond market inrecent years, explanatory power of the structural models to current bondmarket is still not strong.Second, among the four selected macroeconomic factors, the impactof risk-free interest rates on credit spreads is most significant and thedirection of the effect is generally negative. However, some marketevents will change the inverse relationship between the two.Third, based on the inverse relationship between interest rates andcredit spreads, we get some investment rules: when interest rate rises, theyield to maturity (YTM hereinafter) of corporate bonds raises less thanthat of treasure bonds, hence corporate bonds have more defensive value;when interest rate goes down, the YTM of corporate bonds falls less thanthat of treasure bonds, hence investing in treasure bonds will gain moreprofit. Remember to pay attention to the market events which can changethe inverse relationship between interest rates and credit spreads.Last but not least, the impacts of other macroeconomic factors oncredit spreads are not very significant and some model results are not incompliance with our common senses.At the end of this paper, we have provided some policyrecommendations to improve the inadequacies of our domestic bondmarket.