Corporate Bond's Interaction Of Interest Rate And Credit Risks Impact On Credit Spread

Researchers have explored determinants of credit spread to find causes of the “credit spread puzzle”.Bond's credit spread is influenced by interest rate and credit risk.However,no paper studies the determinants of credit spread from the interaction of them.We investigate the determinants of credit spread on China's corporate bonds from 2014.3 to 2016.3 on both static and dynamic aspects.We study panel data in static analysis from the interaction of interest rate and credit risk,use the method of multiple regressions to discuss the credit spread from term,credit rating and industry respectively,and add the factor of liquidity risk compared with the structure model to acquire stable results.We study time series in dynamic analysis from significant interactive variables in static analysis,construct dynamic models with credit spread from term,credit rating and industry respectively,and discuss the dynamic impact of interactive variables to credit spread from impulse response function and cointegration.We find that the interaction of interest rate and credit risk has a significant effect on credit spread of China's corporate bonds as a whole,which mainly contains the interaction between slope of term structure and corporate leverage ratio,and is positively related to the credit spread.The impulse response of credit spread shows a violate fluctuation in short terms and a smooth fluctuation in long terms.The interaction between slope of term structure and corporate leverage ratio shows a negative correlation with credit spread both in long and short equilibrium relations,which significant impacts on credit spread.Based on the overall analysis,the result shows some other characters from term,credit rating and industry respectively.The empirical results provide a new method in research of credit spread and bond's risk management.The interaction of interest rate and credit risk may be a cause of “credit spread puzzle”.