Generally, higher bond yields indicate higher financing costs, which in turn influence productive investments and economic activity.

Given the rapid growth of the People’s Republic of China (PRC) bond market, and its importance for economic growth, it is worthwhile to understand the pricing dynamics of the market.

Moreover, as the world’s third largest bond market with $6.5 trillion in outstanding paper at the end of March, including $2.2 trillion in corporate bonds the PRC bond market is gradually lifting restrictions on foreign investments.

Deepening market liberalization offers more opportunities to worldwide investors in terms of both higher returns and portfolio diversification. This research aims to provide up-to-date evidence on the pricing process of PRC corporate bonds, fostering global risk sharing.

Credit risk premium and maturity risk premium are the two main components of the mark-up in bond yields.