Research On The Relationship Between Credit Risk Of Corporate Bonds And Credit Spreads In China

After the default of "Chao Ri Bond" in 2014,the "rigid payment" rules of China was broken,a series of default events came one after another.The amounts of debt and the influences of default are increasing,so we need to beware of the credit risk of bond market in China.Corporate bonds,as one of the credit debt,have a wide variety and diversity of structure.It’s difficult for government to regulate.And because the market started late,all the systems are being explored.The risk under the market is huge.So the regulators set a higher bound in corporate bond market.But it does not mean that the investors can ignore the risk.In recent years,our country’s corporate bond market has been expanding,the range of industries that issuing the bond are also expanding.Be aware of the credit risks is getting more and more emergent.This paper studies the listing company which has issued corporate bonds and the bonds are also in duration,using the data from November 2011 to November 2016.To measure the credit risk of issuing body,this paper uses the modified KMV model to calculate company’s distance to default,then treats the distance to default as the variable to analyze the relation between credit risk and credit spread.It found out that real estate,leasing and business industry,service industry had the smallest distance to default,so the credit risk of them relatively high.While the transportation,warehousing and postal services,information transmission,software and information technology services industry had the larger distance to default,indicating the lower credit risk.On the other hand,in our country,corporate bonds’credit ratings are mainly concentrate on the AA level which means the rating center is pretty high.But the quality of credit ratings is not satisfying.About the model,it’s proved that it has a certain ability to identify the occurrence of risk events and also has a certain degree of sensitivity.Finally,after constructing a panel model to analyze the relation between credit risk and credit spread,it found that the distance to default and credit spread generally shew a negative relation,which indicated credit risk positively affects credit spread.Credit risk is one of the factors that affect credit spread but not the only one,there are a huge gap between credit risk and credit spread.For further study,this paper added the liquidity in the model,it turned out that liquidity can explain parts of the gap,but not all.In future studies,we can add other factors in to get a further analysis about credit spread.