Abstract
The fat-tail financial data and cyclical financial market makes it difficult for the fixed structure model based on Gaussian distribution to characterize the dynamics of corporate bonds spreads. Using a flexible structure model based on generalized error distribution, this paper focuses on the impact of macro-level factors on the spreads of corporate bonds in China. It is found that in China's corporate bonds market, macroeconomic conditions have obvious structural transformational effects on bonds spreads, and their structural features remain stable with the downgrade of bonds ratings. The impact of macroeconomic conditions on spreads is significant for different structures, and the differences between the structures increase as ratings decline. For different structures, the persistent characteristics of bonds spreads are obviously stronger than those of recursive ones, which suggest an obvious speculation in bonds market. It is also found that the structure switching of bonds with different ratings is not synchronous, which indicates the shift of investment between different grades of bonds.
Highlights
Bonds market is an important component of China’s financial market
The main purpose of this paper is to investigate the comprehensive effect of market and macro conditions on the change of bonds spreads and the influence of different structures in the context of potential structural transformations
Faced with the fat-tail financial data and cyclical characteristics of financial market, as well as incidental external shocks, the fixed structure model based on the Gaussian distribution
Summary
Bonds market is an important component of China’s financial market. Due to historical reasons of the economic system, China’s bonds market has been developing slowly with respect to China’s stock market. The bonds market is small and has low degree of marketization. By the end of 2006, the balance of the China’s bonds market was CNY 5745.5 billion, 27.44% of GDP, far below the level of 163.11% in developed countries. The corporate bonds balance is only CNY 283.1 billion, accounting for 5% of the whole bonds market share, and only 1.35% of GDP, or even lower than the level of 30% in the Asian countries with financial crisis. By the end of 2016, the balance of China’s bonds market reached CNY 63.7 trillion, only lower than the Unites States and Japan
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