Empirical Study On The Factors Affecting Credit Spreads Of Medium-term Notes In China

Since the 1990s,China has made great progress in the development of financial market,considering the expansion of market scale,the diversification of financing tools and market participation of its people.China's bond market began to flourish since 2000s.At present,corporate bonds,corporate bonds,short-term financing bonds and medium-term notes and other credit bonds is traded on China's bond market.The medium-term notes have become an important financing tool for non-financial enterprises after the release of China's short-term financing bond market,which provides a flexible financing channel between short-term and long-term.The widening of financing channels and the reduction of financing costs brought about by the development of medium-term notes have greatly supported the enterprises in the post-crisis era.It also enriched the selection base in the market and provided investors with more diversified financial investment options.The expansion of the medium-term notes shows that enterprises and investors have a strong demand for them,but problems have been emerging in the development of medium-term note market.Baoding Tianwei Group become the first state-owned enterprise that defaulted its medium-term note payments due to huge losses in April 2015.Then,the frequency of medium-term notes defaults has intensified,with four medium-term notes defaulting events in 2015,and nine in 2016.A comprehensive and systematic study is needed to help effectively identifying and preventing credit risk of medium-term notes.With the rapid development of China's medium-term notes market,related investment and transactions will become more active and the issues of medium-term notes will be increasingly important.This paper analyzes the credit spreads of the medium-term notes from different perspectives,which has important theoretical and practical and practical significance.On the basis of the extensive literatures on the credit spreads,we summarize the research on the affecting factors of credit spreads based on the present development stage and trading characteristics of China's medium-term notes market.This paper investigated mechanisms of such factors from the perspectives in macroscopic,corporate finance and bond itself.We referred relevant literatures of existing credit bonds to analyze influence of these factors on credit spreads of the medium-term notes.We also further summarize the impacts of these factors on credit spreads of the medium-term notes by reviewing classical bond pricing theories and modern mathematical models.In the empirical analysis,we described basic characteristics of the variables and then examined how these factors affected the credit spreads and reasonable explanations are made.We draw the following main conclusions:First,at the macroeconomic level,the growth rate of industrial value-added,producer price index and M2 will reduce the credit spreads of medium-term notes.However,the uncertainty caused by inflation will increase the credit spread.At the macroscopic market level,the improvement of the risk-free interest rate and the improvement of the stock market will decrease of the spread.The slope of the bond interest rate curve and the SHIBOR overnight interest rate are positively correlated with the spreads.Second,at the firm level,we found that firm size,profitability and operational capacity will help reduce the spreads.While liquidity,asset-liability ratio and sales growth increases in the spread.As to other characteristics of the issuers,we found that firms in different industries vary in credit spreads with significant differences.A state-owned firm or listed company could often issue medium-term notes at lower cost.Thirdly,with the increase of the credit rating,the spread of the medium-term notes significantly decreases.We also found that medium-term notes with a maturity of 5 years has smaller credit spreads than that with a maturity of 3years and the cause may be that high-quality enterprises are more inclined to issue long-term notes in China.The larger issue size of medium-term notes,the greater the spread of medium-term notes for higher defaulting risk.Finally,we present policy recommendations for the long-term development of medium-term notes.