The Determinants of the Nondefaultable Spreads of Corporate Bonds: Evidence from China

Abstract

This study investigates the factors impacting the price difference between the interbank market and the exchange market for the same bond using a large transaction dataset from July 2006 to June 2016 in China. We find that market liquidity and macrofactors mainly affect the price difference between the two markets for the same bond. And individual bond liquidity explains only a small part of the price difference. We also find that the interaction between liquidity and credit risk is an important factor affecting the price difference, and the effect is greater during financial crisis.