Macro-Factors of Credit Spreads in Corporate Bonds

Abstract

This study emphasizes on analysis of the macro factors of the credit spreads (CS) of the fixed-rate corporate bonds of non-financial enterprises.Firstly, industry growth (IG) has a significant negative impact on CSs. IG reflects the prosperity of the real economy. The increase of investment demand promotes the rise of bond prices and narrows the CSs; Secondly, consumer price index (CPI) has a significant positive impact on CS. On the one hand, the increase of inflation will reduce bond investment demand, on the other hand, it will increase investors' expectations of future tightening monetary policy. Uncertainty increases while default risk rises and CS widen. Thirdly, spreads of treasuries have a significant negative impact on CS. When the slope of the treasury yield curve increases and the expectation of interest rate increases, macro-economy is in an upward stage, and CS narrow. Fourthly, the analysis of VAR, variance decomposition and impulse response function show that the impact of CPI, IG and interest rate difference of national debt on spreads has time lag. While money supply affects CS by affecting CPI. This study discusses the CS which is very important for the asset allocations of investors. The investors and market participants should consider the macro-factors while invest in corporate bonds.