Kirill A. DARCHEVRussian Presidential Academy of National Economy and Public Administration (RANEPA), Moscow, Russian Federation darchev.k@mail.ru ORCID id: not available
Subject. The article discusses credit spreads of local ruble-denominated bonds. Objectives. The purpose is to determine the impact of equity dynamics, expressed in terms of profitability and volatility, on the pricing of local ruble-denominated bonds at secondary auctions on the Russian market, expressed in the level of the credit spread. Methods. The study employs a linear regression model based on a sample of 49 issuers who placed 248 bond issues, with a total of 205,266 observations. Results. The study revealed that the degree of influence depends on issuer’s credit quality. The lower the credit quality, the stronger the stock dynamics explains the credit spread dynamics. Thus, for first-tier issuers, the negative dynamics of equity capital does not reflect the increasing likelihood of bankruptcy due to extremely large "distance to default." Accordingly, the share of the default factor in the credit spreads of their bonds is insignificant. However, when crisis events occur in the economy, default factors for all issuers will come to the fore, which is why the dynamics of stocks and bonds will move in the same direction. This explains the significant variation in the predictive power of the model for the same issuer. At the same time, the inclusion of credit rating does not significantly increase the predictive power of the model, which already takes into account the equity parameters. Conclusions. The dynamics of equity can be used to predict the future trajectory of credit spreads for high-risk issuers.
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