Research On The Pricing Influencing Factors And Price Spillover Effects Of Credit Bonds In China

Credit bonds,as a form of direct financing instrument in the bond market,possess characteristics such as high flexibility,strong liquidity,and low financing costs.With the continuous expansion of the Chinese bond market,credit bond issuance has gradually become one of the main channels for corporate financing in our country.As of the end of December 2022,the custody balance of the bond market was 144.8 trillion,a year-on-year increase of 11.3 trillion.Among them,the custody balance of the credit bond market was 44.21 trillion,accounting for nearly one-third of the total bond market.At the same time,China’s economy is in a transition phase from high-speed growth to high-quality development,with deepening structural reforms,and credit bond default issues have shown a trend of normalization.Identifying the pricing factors and price spillover information of credit bonds more effectively is of significant practical significance for managing credit risk and promoting the stability and sustainable development of the credit bond market.In view of this,this paper focuses on the research of pricing factors and price spillover in the credit bond market,firstly exploring the impact of corporate qualification risk and external environmental policy risk on credit bond pricing at the individual level.Secondly,from a meso level perspective,we investigate the price spillover effects among different credit bond submarkets.The main research work conducted in this paper is as follows:Firstly,from the perspective of default risk caused by corporate qualification,we explore the influence of rollover risk factors on credit bond pricing.Credit spread represents the risk premium that companies need to pay in bond market financing and serves as the foundation for bond pricing and risk management.Therefore,this paper comprehensively examines the mechanism of rollover risk on credit bond credit spreads.Secondly,credit ratings are incorporated into the unified framework of rollover risk and credit bond spreads,and the systematic discussion of credit bond pricing is conducted from multiple dimensions of liquidity.The research reveals that there is a significant positive correlation between rollover risk and credit spreads,indicating that the more short-term debt a company has,the larger the credit spreads of its bonds.Furthermore,a large amount of short-term debt will affect the credit ratings of companies,thereby impacting credit bond spreads.In addition,insufficient corporate financial liquidity,lack of bond market liquidity,and tightening of credit market liquidity will exacerbate the positive expansion effect of rollover risk on credit spreads.Moreover,the expansion effect of rollover risk on credit spreads is stronger in non-state-owned companies,companies with unsecured debt,companies with a high degree of financing constraints,and companies with a high proportion of indirect financing.Researching the impact of rollover risk on credit spreads from the perspective of short-term refinancing pressure is helpful for exploring ways for companies to reduce bond financing costs and enhance the financing function of the bond market.Furthermore,this study explores the impact mechanism of climate policy factors on the pricing of credit bonds from the perspective of default risk triggered by macroeconomic transformation policies.Taking the signing of the Paris Agreement as a quasi-natural experiment,a difference-in-differences approach is adopted to investigate the influence of climate transition risk on bond credit spreads,followed by a series of robustness tests.In order to better understand the relationship between climate policy shocks and credit spreads,further channel testing and potential firm heterogeneity are conducted.The study finds that the credit spreads of carbon-intensive companies significantly increase after climate policy shocks.Furthermore,credit ratings and default risk are two potential channels through which climate transition risk affects bond credit spreads.Climate policy shocks can lower the credit ratings of high-carbon companies and increase default risk,leading to higher spreads in the credit bond market.In addition,we find that companies with high liquidity and excellent environmental performance can mitigate the negative impact of climate policy shocks on the bond market.Heterogeneity analysis indicates that climate risk has a smaller negative impact on bond credit spreads in state-owned enterprises,secured bonds,low financing constraints,and large-scale enterprises.Subsequently,this paper explores the time-varying price spillover effects and driving factors between credit bond submarkets at the meso level.Firstly,using the time-varying spillover index method,the network-directed dynamic spillover effects between credit bond submarkets(corporate bonds,company bonds,medium-term notes,short-term financing bonds)and government bonds are measured,with a focus on the changes in spillover intensity under extreme events.Secondly,a range of macroeconomic factors are selected to investigate their marginal impact on various spillover intensities,further clarifying the driving mechanism of asset spillover effects among bond submarkets.The study finds that corporate bonds and company bonds are mainly influenced by the price index of medium-term notes,while short-term financing bonds are most sensitive to the price drivers of other bond markets.Financial bonds have stronger spillover effects compared to government bonds and local government bonds,making them systemically important bonds.Furthermore,the shocks from extreme events intensify the spillover effects of different assets in the market,leading to synchronized price movements.Major events such as trade disputes and the COVID-19 pandemic have a significant impact on spillover effects in the bond market.In addition,the net spillover effects between corporate bonds and company bonds switch between positive and negative values,with company bonds being the net receiver of spillover most of the time,while credit bonds remain the net receiver of spillover from government bonds.Furthermore,macroeconomic variables have a significant explanatory power for the net spillover effects in bond submarkets.Loose monetary policy reduces the net spillover effects of government bonds,local government bonds,and financial bonds,while declining interest rates,intensified inflation,and rising oil prices increase the spillover effects of government bonds.Next,the focus is on the price spillover relationship between credit bonds at the industry level.Firstly,static and dynamic spillover effects between industry credit bonds are measured using the time-varying spillover index,and dynamic spillover is estimated at different quantile levels,providing empirical evidence for extreme price spillover characteristics among industry credit bonds.The study finds that non-financial,power,and highway industries have higher and less volatile credit bond spillover levels,while the coal and real estate industries have experienced a decrease in spillover effects in recent years.The credit bond spillover effects in the manufacturing industry have gradually increased since 2020.In terms of net spillover,non-financial and power industries have been net transmitters of spillover,exerting significant influence on the overall stability of the credit bond system.The real estate industry’s credit bonds,on the other hand,are the largest net receivers of spillover in the asset network.The net spillover values of the steel,manufacturing,and construction engineering industries fluctuate between positive and negative,influenced by various events.After the outbreak of the COVID-19 pandemic,the spillover levels among industry credit bonds significantly increased,particularly impacting the credit bond markets of the construction engineering and manufacturing industries.Since 2021,the development trend of industry credit bond relationships has gradually moved away from excessive correlation,exhibiting differentiated characteristics.However,the total spillover remains high at extreme quantile levels.Additionally,the highway industry may become a net receiver of spillover during extreme periods.Other assets demonstrate heterogeneity in spillover intensity and positive/negative values during extreme and non-extreme periods.Finally,the study focuses on the price spillover relationship between emerging green bonds in the credit bond market and other financial assets.Using a time-varying vector autoregressive(TVP-VAR)approach,the time-frequency spillover method is employed to measure the changes in spillover effects between assets from a dynamic and short-to-long-term perspective.The study also assesses the diversification benefits of incorporating green bonds into portfolios and provides a comprehensive understanding of the risk-return characteristics of green credit bonds.The research reveals that,overall,green bonds act as net transmitters of price spillover in the asset network.However,short-term spillover effects are more significant,while in the long run,green bonds become net receivers of price spillover driven by shocks to the financial system.Sudden events or financial policies are the main factors causing spillover between green bonds and other financial assets.The reaction of different markets to event shocks exhibits heterogeneity,where financial events specific to certain markets significantly enhance short-term price spillover in those markets.Major events directly impacting the real economy,such as the COVID-19 pandemic,increase the spillover levels across all markets to varying degrees.There is a significant dependency and asymmetric spillover relationship between green bonds and traditional bond markets.In the short term,green bonds act as net transmitters of spillover in the government bond market,while in the long term,they are driven by spillover from government bond prices.Furthermore,green bonds serve as net transmitters of spillover in high-yield corporate bonds,with long-term spillover dominating.This further enhances our understanding of the short and long-term price spillover effects among the three bond submarkets.Finally,including green bonds in a bilateral portfolio with government bonds,high-yield corporate bonds,and commodity markets reduces the volatility of assets,particularly during the pandemic,diversifying the risk of stock and foreign exchange markets.This chapter provides empirical evidence for the development of green credit bonds as a means of direct financing in the credit bond market.Overall,this study conducts an extensive and comprehensive exploration of the factors influencing the pricing and price spillover relationships in China’s credit bond market from various risk perspectives and different market levels.The contributions of this research can be summarized as follows: Firstly,within the unique institutional framework and research context of China,this study analyzes the impact of individual firm qualifications on credit bond spreads at the individual level.It investigates the pricing mechanism of credit bonds,addressing the deficiencies in existing research that primarily focus on debt maturity perspectives.This enriches the research on factors influencing credit bond pricing.Secondly,this research comprehensively examines the impact of climate policy changes on credit bond spreads,with a specific focus on the adjustment of credit bond spreads for carbon-intensive corporate bonds.It also integrates default risk,credit ratings,liquidity,and environmental performance into a unified research framework,expanding the analysis of the channels through which climate risk affects credit bond pricing.Thirdly,it analyzes the time-varying price spillover relationships of different types of credit bonds and industry bonds in the Chinese credit bond market.By employing time-varying quantile spillover index methods,it delves deeply into the spillover characteristics and underlying driving factors of bond submarkets,providing a basis for cross-market and cross-industry credit bond regulation.Lastly,this study conducts a comprehensive investigation into the emerging green concept credit bond market,including the analysis of price spillover information and portfolio research.It introduces the time-frequency spillover index method to provide accurate information on spillover direction and intensity for investors,thereby supporting asset allocation and investment decisions.The research on factors influencing credit bond market pricing offers investors a new perspective for assessing embedded risks in credit bonds and mitigating the rise in corporate financing costs.Price spillover effects related to the credit bond submarket play a crucial role in portfolio construction,risk management,and derivative pricing.By focusing on the risk characteristics of the Chinese credit bond market,this study provides a foundation for the vigorous development of the bond market for direct financing.