Research On Corporate Bond Yield Based On Forward Risk-Free Interest Rate

Corporate bond financing,as a way for companies to conduct direct financing,is different from indirect financing of bank borrowing in that the former has an obvious risk boundary,and the market will change the expected bond yield and risk into the change of bond yield.If the market is effective enough and the risk assessment is reasonable,the corporate bond yield will reflect two expectations: one is the interest rate expectation,which can be determined by the risk-free interest rate curve,reflecting the expected change of the investment yield;Second,risk expectation,which covers the possibility of default,liquidity and tax policy of bonds,is reflected in different credit risks of bonds.Therefore,even though corporate bonds are relatively certain as an investment tool of cash flow,due to complex expectations,credit changes of issuing subjects,interest rate of debt and remaining maturity and other key factors,bond yield will fluctuate greatly and investors will not know what to do.The traditional calculation of the yield to maturity of corporate bonds based on IRR implies the assumption that the reinvestment rate of debt interest is still IRR,that is,assuming that the reinvestment rate of debt interest is the same at all time points and there is the same risk compensation.However,due to the different credit risks of different issuers,the risk compensation of different bonds will be different.Even if the interest of debt issued at the same time point is different,the reinvestment interest rate may be different.Obviously,this assumption is a subjective assumption that deviates from the expected changes in the market.For this reason,this paper first considers the correction methods of the internal rate of return method--the external rate of return method and the modified internal rate of return method,and applies them to the calculation of the real yield to maturity of bonds.In other words,the debt interest reinvestment rate was solidified into a single risk-free interest rate,and it was found that although these two correction methods could remove the risk premium contained in the debt interest reinvestment rate to some extent,they still could not reflect the expected changes of future interest rates.Then,we assume that the interest of the bond acquired during the holding period can be reinvested at the implied forward risk-free rate,and propose the MERR method of modified external rate of return.This method can eliminate the risk compensation contained in the reinvestment interest rate of debt interest.Moreover,this method can embed the expected change of future interest rateinto the yield to maturity calculation model by using the change of bond yield curve.In addition,according to the characteristics of forward interest rates,the correction direction and range of IRR by MERR can be judged,so that investors can make more rational and objective analysis of bond yield to maturityThe modified method of bond yield to maturity proposed in this study--modified external yield method(MERR)can provide a good reference for the debt financing cost of corporate bonds and the real yield of corporate bond investors.