A Study On The Impact Of Liquidity Factors On China Credit Bonds' Credit Spread

In the past decade,the scale of China credit bond market has expanded rapidly.It has become imperative to study the impact of various risk factors on credit spreads.In the past research,more attention was paid to credit risk factors,but this article mainly considers liquidity factors based on the fact that China credit bond has a rigid redemption expectation,and bond issuance pricing and transaction pricing in practice are susceptible to market liquidity,and also on the observation of past credit spread trends.The influence of liquidity factors,especially the market liquidity factors on credit spreads,cannot be ignored.Therefore,on the basis of previous studies,this paper uses market and individual bond liquidity proxy indicators to measure the impact of liquidity factors on China credit bonds' credit spread from the market level and the individual bond level.First of all,at the market level,this article calls for the yield curve of the bond whose bond rating is AAA,AA+,AA and maturity is 6 months,1 year,3 years and 5 years for each transaction week between 2007 and 2017,and calculates the credit spread.Inter-bank 7-day pledged repo rate(R007)and Shanghai Stock Exchange 7-day pledged repo rate of treasury bond(GC007)are applied as the proxy indicator of market liquidity to study the impact of market liquidity on credit spread through time series regression.Research shows that credit spread is significantly positively correlated with pledged repo rates;the higher the credit rating of bonds and the shorter the maturity,the greater the impact of market liquidity on credit spread;compared to the exchange market,the impact of market liquidity on inter-bank bond is greater.Second,at the individual bond level,this study selected 40 medium-term notes and 55 corporate bonds to study the effect of market liquidity and individual bond liquidity on credit spread during 2016 to 2017.The impact of market liquidity is basically the same as the empirical results at the market level.The effect of the liquidity of individual bond is not significant due to the inactive trading of credit bonds in China.Finally,combined with theoretical and empirical research,this article proposes policy recommendations to regulators of China credit bond market,including gradually tightening supervision and preventing the occurrence of liquidity fracture risk,improving the liquidity of China credit bond market,narrowing the trading system difference between the inter-bank market and the exchange market,and breaking the rigid expectation of redemption,etc.