Abstract
This paper aims to study the dynamics of corporate bond yield spread in India, and attempted to identify the possible determinants: bondsā liquidity, credit quality and therefore their yield spreads. A large sample of daily corporate bond trade data over a period of 6 years (2011ā2016), classified into Issuers Segment-wise and Rating-wise, are analyzed within a basic statistical framework and using panel regression model. Default risk, as captured by the credit rating, is found to significantly affect the yield spread, for all types of securities. Even if the summary statistics and panel regression results broadly support the relationship between bond liquidity, captured through various bond characteristics and trade statistics, and yield spread, use of better liquidity proxy measure may improve the said relationship. Movements in equity market also affect corporate bond yield spread in India.
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