An Empirical Analysis Of The Influencing Factors Of China's Medium-term Note Credit Spread

What kind of notes is exactly Medium-term notes(MTN)? The definition given by NAFMII is: issued by non-financial companies,purchased in interbank bond market,make an agreement with investors that will repay capital and interest in certain period.Because of the convenience in distribution,the market of Medium-term notes in China developed rapidly,the Annual circulation since 2015 has exceeded 1 trillion RMB Yuan.Since 2015,Medium-term Notes have appeared the phenomenon of material default,research on credit risk pricing is becoming more and more impotent.The credit spread of medium-term notes(the difference between the issuing interest rate of medium-term notes and the risk-free interest rate of the same period)are usually used to measure the pricing of credit risk of medium-term notes in the market.Most Chinese literatures take corporate bonds as the sample,but seldom take medium-term notes as the sample.If we notice the debt balance,medium-term notes now have become the second largest bond in China’s bond market after corporate bonds.Therefore,it is truly important to learn which factors affect the credit spreads of MTN mostly.After stated the background and significant,this paper next conclude the literatures on the influencing factors of credit spreads in both domestic and foreign country,and divides the influencing factors into macro-level factors(economic growth,etc.)and micro-level factors(credit rating,financial situation,liquidity,etc.).Subsequent chapters review several stages of development of China’s domestic MTN market.It also show us that there are still some serious problems in our MTN market,give an example as the high proportion of state-owned corporations issuing,the imperfect default protection for investors,and the ratings inflation,which make the possibility for further research.Although MTN were first introduced in 2008,issuance stagnated for a period of time until 2010,when issuance recovered.So this paper surely choose the MTNs which issued from 2010 to June 2019 as the research basic object,make different factors research by two levels: macro and micro levels,and use different factors to complish the theoretical research and empirical analysis separately.We examine macroeconomic factors such as the annual growth rate of industrial added value of Enterprises above scale,consumer price index,factory price index of industrial producers,money supply,monthly rise and fall of Shanghai-Shenzhen 300 index,weighted interest rate of repurchase in interbank market,slope of risk-free return curve,net assets.The influence of micro-factors such as scale,net asset interest rate,DA,total asset turnover ratio(TAT),business income growth rate,liquidity ratio,enterprise nature,whether listed company or not,etc.on credit spreads of MTN.The paper’s empirical research show us the following information directly.Firstly,on the macro level,there is a especially negative correlation between the ex-factory price index of industrial producers(as known as PPI).The above conclusions are based on the three-year and five-year mid-term notes.The regression results of the data were validated.The regression results of the grading samples were verified.In addition,the nature of enterprises(whether state-owned enterprises)and whether listed companies also have a significant impact on the credit spreads of medium-term notes.The background of state-owned enterprises and listed companies can significantly reduce the credit spreads of medium-term notes.This paper suggests,such as,formulating reasonable interest policy in domestic market,and improving the quality of the financial information and business information and credit information disclosure of medium-term notes issuers,and points out the future research wills.At the same time,the paper point out that the future research on credit spreads of medium-term notes can be further carried out from the following aspects: On the macro level,we should further explore the impact of China’s unique institutional factors on the credit spreads of medium-term notes,and make the normal research on credit spreads of this paper more abundant;Some more complex and scientific measurement models should be used to consider the impact of other factors on the credit spreads of medium-term notes;After 2015,more and more medium-term notes begin to default,After substantive default occurs,some new factors may already exist,which will affect the credit spreads of MTN,we need to make further research of them in new theoretical and empirical models.