Determinants of Corporate Bond's Yields in Economy

Abstract

Bond is a debt instrument used by the corporate to raise fund from the market. Market price of bond is inversely related with market interest rate. The percentage change in market price of bond for a proportional change in yield can be measured by modified duration, convexity, yield curve and expectation hypothesis. The objective of this paper is to identify different perspectives of bonds and bond market, to explore the determinants affecting bonds yield and to explain the mechanism through which determinants affects the corporate bonds yield. The methodology of the research paper is to analyse secondary data available in Bloomberg. USD currencies denominated bonds are used for analysis purpose. Different statistical tools such as correlation, regression, coefficient of determination and Analysis of Variance are used for interpretation of secondary data. After conducting empirical research, it is found that tenor of bond, credit rating of bond, currency of bond, country of bonds, collateral type of the bond and options of the bond have influence on bond’s yield. Longer tenor of the bond is expected to have higher yield. Higher credit rating of the bond reduces yield rate. Currency also impacts the bond. Currency with higher inflation rate of that country is expected to have higher interest rate. Country with higher sovereign rating has lower yield rate. Bonds which have callable options have lower yield rate. Secured bonds have lower yield rate whereas unsecured bond have higher yield rate.