The Analysis on Credit Spread Determinants of Chinese Enterprise Bond and Corporate Bond

Using an aggregate credit spread index, we find that it has substantial predictive power for corporate bond returns over short and long horizons. The return predictability is economically and statistically significant and robust to various controls. The credit spread index and its components have more predictive power for bond returns than conventional default and term spreads. When decomposing the credit spread index into investment- and speculative-grade components, the latter has more predictive power for future bond returns. The source of the index’s predictive power is from its ability to forecast future economic conditions.

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Common Factors in the Term Structure of Credit Spreads and Predicting the Macroeconomy in Japan

International Journal of Financial Studies ◽

10.3390/ijfs9020023 ◽

2021 ◽

Vol 9 (2) ◽

pp. 23

Author(s):

Takeshi Kobayashi

Keyword(s):

Business Cycle ◽

Term Structure ◽

Common Factors ◽

Corporate Bond ◽

Credit Spread ◽

Credit Spreads ◽

Real Economy ◽

The Business Cycle ◽

Bond Spreads ◽

Predictive Content

This study extracts the common factors from firm-based credit spreads of major Japanese corporate bonds and examines the predictive content of the credit spread on the real economy. Instead of employing single-maturity corporate bond spreads, we focus on the entire term structure of the credit spread to predict the business cycle. We extend the dynamic Nelson-Siegel model to allow for both common and firm-specific factors. The results show that the estimated common factors are important drivers of individual credit spreads and have substantial predictive power for future Japanese economic activity. This study contributes to the literature by examining the relationship between firm-based credit spread curves and economic fluctuation and forecasting the business cycle.

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The Analysis of Corporate Bond Valuation under an Infinite Dimensional Compound Poisson Framework

Abstract and Applied Analysis ◽

10.1155/2014/282185 ◽

2014 ◽

Vol 2014 ◽

pp. 1-10

Author(s):

Sheng Fan

Keyword(s):

Poisson Process ◽

Firm Value ◽

American Options ◽

Corporate Bond ◽

Credit Spread ◽

Compound Poisson ◽

Forward Rates ◽

Infinite Dimensional ◽

Bond Valuation ◽

Analytical Results

This paper analyzes the firm bond valuation and credit spread with an endogenous model for the pure default and callable default corporate bond. Regarding the stochastic instantaneous forward rates and the firm value as an infinite dimensional Poisson process, we provide some analytical results for the embedded American options and firm bond valuations.

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