Risk Structure For Enterprise Bond And Risk Transmission Between Enterprise And Treasury Yield Curves

In recent years,the volume of Enterprise bond in China has been boomed rapidly.At the same time,risk events appear time to time,for example,default events such as Chaori Bond,SinoSteel Bond and liquidity events such as Moneyless in 2013,Bond Disaster in 2017.It's important to precisely recognize the default risk and liquidity risk in Enterprise bond market.We extract two factors from spot rates spread of En-terprise bonds in order to represent default risk and liquidity risk.Furthermore,we take a deep look into the risk transmission mechanism between Enterprise bond and Treasury bond market through Enterprise two-factor and Treasury bond Nel-son-Siegel three-factor using VAR model.In 2014,the first substantive default event of bond market happened.To deal with the local government debt,the state intro-duced new Budget Law,announced the process to replace local government debt,passed other major laws and regulations associated with the Enterprise bond market.All of them may have a great impact on the Enterprise bond market in china.So we divide the whole period of 2009-2017 into two subsamples,in order to compare the difference of Enterprise market during these years.The Enterprise bond and Treas-ury bond market do have risk overflow.We find that liquidity risk has same contri-bution for Enterprise bond risk premium after 2014 as before,but default risk has been taken more care of after 2014.Especially for low degree bond,the investors ask for higher default risk premium.The monetary authority takes a higher tolerance to liquidity risk and default risk in bond market after 2014,since the market relief reduces and the market reaction decreases.And we also find that the flight-to-liquidity and flight-to-quality effect doesn't significant anymore after 2014.Instead,the Treasury bond's level factor increases with the Enterprise bond risk fac-tors,in the background of high systematic risk of china.This implies that the rela-tionship between Enterprise bond and Treasury bond market changed from Alterna-tive before 2014 to Complementarity.