Research on the determinants of China's corporate bond credit spreads

Abstract

Based on Merton structural model of corporate bond credit spreads, this paper estimates the China's expected credit spreads from credit risk measurement perspective. The structural model underestimates the predicted result shows that corporate bond credit spreads. Through the dynamic empirical analysis, we find that there still exists a close correlation between corporate credit spreads and output/inflation indicators when the credit risk was eliminated. It shows positive association with bond supply and stock volatility will generate negative spillover effects on corporate bond market. Bond maturity and the company's operating leverage show significant positive correlation to the difference between actual and estimated credit spread while the credit rating exhibits a negative correlation.