Corporate Credit Spread in China

CEIC Gallery/Market - November 30, 2015 Introduction Corporate credit spread, the difference between corporate bond yield and Treasury bond yield, is mainly affected by a corporate’s default risk. The other factors include a bond’s liquidity risk, call risk, and exchange rate risk, etc. Chart 1 below compares AAA corporate bond yield and Treasury bond yield with different bond duration in China. You may select the bond duration in the drop-down menu. Chart 2 shows the credit spread calculated based on the selection in Chart 1. The recent downward trend reflects the efforts of the Chinese government in lowering borrowing costs for corporates, which in turn lower their credit risk. Both interest rate cut and required reserve ratio (RRR) cut work together to increase money supply in the market. Please refer to Chart 3 for China’s M2 Money Supply. Indeed, China is working both onshore and offshore to lower Chinese corporates’ borrowing costs. Offshore efforts include internationalization of RMB through Shanghai-Hong Kong Stock Connect, QFII and QDII, and inclusion of RMB into the SDR basket, etc. Discuss this post and many other topics in our LinkedIn Group (you must be a LinkedIn member to participate). Request a Free Trial Subscription. Back to Blog
7th December 2015 Corporate Credit Spread in China

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