Not All Bonds Are Created Equal - As Benchmarks for Corporate Bonds

69 Pages Posted: 9 Jul 2021

See all articles by Keqi Chen

Keqi Chen

Tsinghua University, PBC School of Finance, Students

Yi Huang

Graduate Institute of International and CEPR

Kathy Yuan

London School of Economics & Political Science (LSE) - Department of Finance

Hao Zhou

SUSTech Business School; Tsinghua University - PBC School of Finance

Date Written: June 23, 2021

Abstract

We find among government and quasi-government bonds, municipal corporate bonds (MCB) act as regional benchmarks and improve the quality of the nascent but fast-growing corporate bond market in China by facilitating price discovery and expanding investment opportunity sets. The benchmark effects of MCBs are more pronounced in corporate bonds with similar maturity, from the same region, in industries directly affected by government spending or traded on the exchange market. Furthermore, we find the supply of long-term MCBs encourages local corporations to issue long term bonds, indicating the possibility of complementarity between government and corporate bonds when bond market quality is poor.

Keywords: Municipal corporate bond; Benchmark Bonds; Government Bonds; Spanning enhance- ment; Price discovery; Maturity impact.

JEL Classification: G1 , G8, G12

Suggested Citation

Chen, Keqi and Huang, Yi and Yuan, Kathy Zhichao and Zhou, Hao, Not All Bonds Are Created Equal - As Benchmarks for Corporate Bonds (June 23, 2021). Available at SSRN: https://ssrn.com/abstract=3872425 or http://dx.doi.org/10.2139/ssrn.3872425

Keqi Chen

Tsinghua University, PBC School of Finance, Students ( email )

No. 43, Chengdu Road
Beijing 100083
China

Yi Huang

Graduate Institute of International and CEPR ( email )

PO Box 136
Geneva, CH-1211
Switzerland

Kathy Zhichao Yuan (Contact Author)

London School of Economics & Political Science (LSE) - Department of Finance ( email )

Old Building
Houghton Street
London, London WC2A 2AE
United Kingdom
+44 (0)20 7955 6407 (Phone)
+44 (0)20 7849 4647 (Fax)

HOME PAGE: http://fmg.lse.ac.uk/~kathy

Hao Zhou

SUSTech Business School ( email )

1088 Xueyuan Avenue, Nanshan District
Southern University of Science and Technology
Shenzhen, Guangdong
China
+86-0755-88010464 (Phone)

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing, 100083
China
+86-10-62790655 (Phone)

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