The aim of the study is to investigate the behaviour of the Chinese government bond yield curve before and during the COVID-19 pandemic. Its methodology comprises the techniques of time series analysis, correlation analysis and dimensionality reduction. The main empirical results show that in the pandemic period, the behaviour of the Chinese government bond yield curve differs significantly from that before the outbreak of COVID-19. This is evidenced by the weaker correlations among the analysed yields, the presence of anomalies, heterogeneous behaviour and probable arbitrage opportunities at the long-term end of the studied yield curve, as well as the significant changes in the main factors of its dynamics. The research also reveals that prior to the COVID-19 pandemic, portfolios composed of Chinese government bonds could be well protected against interest rate risk even by using traditional parallel shift immunization techniques. However, after the outbreak of the COVID-19 pandemic the use of such techniques would be relatively effective for portfolios of Chinese government bonds with maturities between 1 and 5 years, while portfolios that include Chinese government bonds with maturities greater than 7 years should be either hedged against all the three factors of the yield curve dynamics or be used only for arbitrage strategies.

Researchers have recently studied the interactions between corporate and government bond issuances in a variety of countries. Some conclude that government bonds compete with private bond issuances, while others conclude the opposite. We study here the special case of China’s 2017 issuance of two sovereign bonds denominated in U.S. dollars. We find that corporate bonds experienced a decline in yield spreads, bid-ask spreads, and price volatility around the time this sovereign issuance was first announced. The results are particularly strong for corporate bonds with maturities similar to those of the USD sovereigns. We conclude that these new bonds served as useful reference instruments that helped investors price and hedge the risks impounded in Chinese corporate bonds.

In this paper, using a set of zero yield curve data of China’s government bonds and credit bonds, along with China’s aggregate credit risk measures, and macroeconomic variables from 2006 to 2013, we document a puzzle of counter-credit-risk corporate yield spreads. We interpret this puzzle as a symptom of the immaturity of China’s credit bond market, which reveals a distorted pricing mechanism latent in the fundamental of this market. As by-products of our analysis, we also find interesting results about relations between corporate yield spreads and interest rates as well as risk premia and the stock index, and these results are somewhat attributed to this puzzle.

This paper intuitively examines the dynamic behavior of two highly relevant interest rates in China. The first one is the government rate, which is decided and published by the central bank and can be simulated by pure jump process. Estimation of the jump intension is given out. And by different robustness test, it keeps stable. The jump size has met the condition to make interest rate within reasonable bounds and shows some meaning of economic cycle behavior. The second one is the market rate, which is estimated by spline approximation based on the transaction data of government bonds. Several models, including Vasicek model, Vasicek-GARCH (1,1) model, CIR model, and CIR-GARCH(1,1), are empirically tested and the best performance is done by the Vasicek-GARCH(1,1) model. Furthermore, the estimate bias problem due to the near unit root process is tested and evidenced by both traditional methods and GPH test. Impact of government rate on market rate is finally checked and analyzed.