The Determinants of the Nondefaultable Spreads of Corporate Bonds: Evidence from China

This study investigates the factors impacting the price difference between the interbank market and the exchange market for the same bond using a large transaction dataset from July 2006 to June 2016 in China. We find that market liquidity and macrofactors mainly affect the price difference between the two markets for the same bond. And individual bond liquidity explains only a small part of the price difference. We also find that the interaction between liquidity and credit risk is an important factor affecting the price difference, and the effect is greater during financial crisis.

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Spread determinants in corporate bond pricing: The effect of market and liquidity risks

Panoeconomicus ◽

10.2298/pan171024002o ◽

2020 ◽

pp. 2-2

Author(s):

Menevşe Özdemir-Dilidüzgün ◽

Ayşe Altıok-Yılmaz ◽

Elif Akben-Selçuk

Keyword(s):

Risk Premium ◽

Emerging Market ◽

Corporate Bonds ◽

Liquidity Risk ◽

Market Liquidity ◽

Corporate Bond ◽

Bond Pricing ◽

High Yield ◽

Bond Liquidity ◽

Investment Grade

This paper investigates the effect of market and liquidity risks on corporate bond pricing in Turkey, an emerging market, and in Europe. Results show that corporate bond returns have exposure to liquidity factors and not to market factors in both settings. Corporate bonds issued in Turkey have significant exposure to fluctuations in benchmark treasury bond liquidity and corporate bond market liquidity; while corporate bonds issued in Eurozone have exposure to equity market liquidity and are sensitive to fluctuations in a 10-year generic government bond liquidity. The total estimated liquidity risk premium is 0.7% per annum for Turkish ?A? and above graded corporate bonds, and 1.08% for the last investment grade level (BBB-) long term bonds. For Eurozone, the total liquidity risk premium is 0.27% for investment grade 5-10 year term bonds, 1.05% for high-yield 1-5 year term bonds and 1.02% for high-yield 5-10 year term category.

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Measuring Financial Fragmentation in the Euro Area Corporate Bond Market

Journal of Risk and Financial Management ◽

10.3390/jrfm11040074 ◽

2018 ◽

Vol 11 (4) ◽

pp. 74 ◽

Cited By ~ 4

Author(s):

Guillaume Horny ◽

Simone Manganelli ◽

Benoit Mojon

Keyword(s):

Financial Crisis ◽

Credit Risk ◽

Euro Area ◽

Financial Integration ◽

Corporate Bonds ◽

Risk Premia ◽

Corporate Bond ◽

Corporate Bond Market ◽

Big 4 ◽

Market Fragmentation

This paper analyses the determinants of euro area non-financial corporate bonds since the early 2000s, so as to gauge deviations from the law of one price. We decompose the spread between the yield of German, French, Italian and Spanish corporate bonds vis-à-vis the German Bund of similar maturity into country, credit and duration risk premia components via dummy regressions. We highlight three main findings. First, the initial phase of the financial crisis (2008–2009) caused an overall increase in credit risk premia. Since the beginning of 2013 credit risk premia are back to levels comparable to those preceding the financial crisis. Second, at the height of the euro area sovereign crisis (2011–2012), high credit risk premia were accompanied by strong and persistent signs of market fragmentation in Italy and Spain (but not in France). This fragmentation has reached its peak in the second half of 2012 and has started to recede only after the announcement of the OMT. Third, we provide a simple measure of financial integration across the big 4 member states of the euro area.

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