Do Bond Investors Care about Margin Trading and Securities lending?: ——An Empirical Study Based on Secondary Market of Medium Term Notes

Abstract

Since the advent of margin trading in 2010, the spillover effect of margin trading system has attracted extensive attention. From the perspective of bond investors, this paper studies the effect of margin trading and securities lending on the credit spread in the secondary market of MTN(medium-term notes). It is found that listed companies’ margin trading and securities lending are significantly positively correlated with credit spreads, and securities lending has a greater effect. Credit spreads increase 0.26% for each 1% increase in relative financing balance, and 20.10% for each 1% increase in relative margin lending balance. Further study found that the change of financing balance was more significant in the AAA grade, 5-year medium-term notes issued by state-owned enterprises, while the change of margin balance was more significant in the non-AAA grade, 3-year medium-term notes issued by state-owned enterprise.The above results show that bond investors do care about the signals released by margin trading and securities lending.