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Government bonds might provide reference entities that reduce corporate bond yields. We study China's 2017 issuance of two U.S. dollar (USD)-denominated sovereign bonds when there were (effectively) no outstanding USD sovereigns. We find that Chinese corporate USD bonds experienced a four- to nine-basis-point decline in yield spreads, whereas corporate renminbi (RMB) bonds did not. The effect was stronger for corporate bonds with maturities similar to those of the USD sovereigns. Further consistent with the reference effect, USD-denominated corporate bonds experienced declines in bid-ask spreads and volatility; corporate bond yield spread changes became more sensitive to sovereign yield innovations; and the less-informed foreign mutual funds significantly increased their holdings of offshore USD Chinese corporate bonds. Limited evidence indicates that new corporate bond maturities shifted toward the sovereign bonds' maturity after their issuance. This paper was accepted by Lukas Schmid, finance. Funding: B. Wang received financial support from Hong Kong Institute for Monetary Research. C. Y. Hong received financial support from the National Natural Science Foundation of China [Grant 72003125]. Supplemental Material: The internet appendix and data are available at https://doi.org/10.1287/mnsc.2022.4499. [ABSTRACT FROM AUTHOR]

This paper proposes a defaultable bonds pricing model extending the traditional spread process definition. The posited model is able to incorporate any potential cyclical, non-linear, or long-term process not fully captured by the stochastic behavior of the spot rate and the instantaneous default rate process. Under this framework, we analyze the empirical ability of our model to capture the spread dynamics of three different Investment-grade US Corporate bonds indexes. Our findings show that when compared to the Benchmark, our model improves the empirical performance reducing the yield spread mispricing by 35%, 37%, and 29% for the High grade, Upper medium grade, and Lower medium grade index, respectively. [ABSTRACT FROM AUTHOR]

This paper investigates the effect of market and liquidity risks on corporate bond pricing in Turkey, an emerging market, and in Europe. Results show that corporate bond returns have exposure to liquidity factors and not to market factors in both settings. Corporate bonds issued in Turkey have significant exposure to fluctuations in benchmark treasury bond liquidity and corporate bond market liquidity; while corporate bonds issued in Eurozone have exposure to equity market liquidity and are sensitive to fluctuations in a 10-year generic government bond liquidity. The total estimated liquidity risk premium is 0.7% per annum for Turkish “A” and above graded corporate bonds, and 1.08% for the last investment grade level (BBB-) long-term bonds. For Eurozone, the total liquidity risk premium is 0.27% for investment grade 5-10 year term bonds, 1.05% for high-yield 1-5 year term bonds and 1.02% for high-yield 5-10 year term category. [ABSTRACT FROM AUTHOR]

This paper explores the pricing implications of green bonds in the Chinese corporate bond market. We document a large greenium in the Chinese green bond market, whereby green bonds are issued at lower offering yield spreads in the primary market and traded at lower yields in the secondary market. The magnitude of the Chinese greenium is substantially greater than other international green bond markets. Exploring the underlying mechanisms, we document convincing evidence that mitigation of information asymmetry and exposure to salient environmental stimuli such as air pollution are plausible explanations of the greenium. • Green certification has pricing implications in the Chinese corporate bond market. • This study documents a greenium in the Chinese bond market. • Green bonds are issued at lower offering yield spreads in the primary market. • Green bonds are traded at lower yields in the secondary market. • The Chinese greenium is greater than other international green bond markets. [ABSTRACT FROM AUTHOR]

This study extracts the common factors from firm-based credit spreads of major Japanese corporate bonds and examines the predictive content of the credit spread on the real economy. Instead of employing single-maturity corporate bond spreads, we focus on the entire term structure of the credit spread to predict the business cycle. We extend the dynamic Nelson-Siegel model to allow for both common and firm-specific factors. The results show that the estimated common factors are important drivers of individual credit spreads and have substantial predictive power for future Japanese economic activity. This study contributes to the literature by examining the relationship between firm-based credit spread curves and economic fluctuation and forecasting the business cycle. [ABSTRACT FROM AUTHOR]