A collaborative paper titled "U.S. Federal Reserve's Contractionary Monetary Policy and the Risks in China's Bond Market: Micro-evidence from Firms' Dual-currency Bond Issuance" by Professor Minggui Yu, Co-Director of the Research Base, and Professor Sichong Chen, Research Fellow of the Base, has been published in the 2025 Issue 2 of China Industrial Economics, a Class A journal recognized by Zhongnan University of Economics and Law.

Abstract:In recent years, to fully utilize both domestic and international markets for financing, Chinese enterprises have issued not only a significant amount of RMB-denominated bonds but also a large scale of USD-denominated bonds. In March 2022, the Federal Reserve initiated the most substantial rate hike cycle in nearly 40 years. For enterprises that have issued both RMB and USD bonds, the Federal Reserve's significant rate hikes may exacerbate corporate debt risks, which is reflected in the widening of credit spreads on RMB bonds. The risk spillover effects of the Federal Reserve's monetary policy have always been a focus of academic and policymaker attention, yet there is little literature examining the risk contagion of the Federal Reserve's monetary policy on China's bond market through micro spillover channels, and related research lacks a micro-foundation.This paper uses secondary market monthly transaction data of RMB-denominated bonds from January 2021 to December 2022 as a sample, selecting bonds issued by enterprises that have issued both RMB and USD bonds as the experimental group, and bonds issued by enterprises that have only issued RMB bonds as the control group. The study employs a difference-in-differences(DID) approach to examine the cross-market risk spillover of the Federal Reserve's monetary policy tightening on China's bond market credit bonds. The research findings are as follows. First, the Federal Reserve's rate hikes significantly increase the risk premium on RMB bonds. Second, the mechanism analysis shows that the Federal Reserve's rate hikes increase the default risk of RMB bonds, thereby raising the risk premium on RMB bonds. Third, the heterogeneity analysis indicates that the increase in credit spreads is more pronounced for bonds issued by private enterprises, real estate companies, bonds with longer remaining maturities, high-leverage enterprises, and enterprises with higher information asymmetry. Fourth, the Federal Reserve's tightening monetary policy has caused risk spillovers to the real economy, reducing the credit support available to enterprises and lowering their fixed asset investment and labor investment. The findings provide important references for China to strengthen the regulation of the bond market and prevent and defuse offshore debt risks. They offer a basis for establishing structural monetary policy instruments to address the impact of the Federal Reserve's monetary policy.This paper makes significant academic contributions. First, it is the first to demonstrate that the Federal Reserve's rate hikes increase losses for enterprises, exacerbating their liquidity constraints, thereby clarifying the micro-mechanism of risk spillover from the Federal Reserve's monetary policy, providing micro-evidence for international finance theory. Second, it is the first to find that the Federal Reserve's rate hikes can increase the credit spreads of China's credit bonds, providing evidence for the impact of other countries' monetary policies on the prices of China's bond market.

Keywords: Federal Reserve's tightening monetary policy; risks in China's bond market; credit bond risk premium

Link: https://lib.cqvip.com/Qikan/Article/Detail?id=7200445344

Teacher profile

Minggui Yu, Professor , Dean of the School of Finance, Zhongnan University of Economics and Law, Ph.D. supervisor, Chief Expert of Major Projects of the National Social Science Fund, and New Century Excellent Talents of the Ministry of Education. Research fields: digital finance, finance and artificial intelligence, corporate finance, finance and innovation. He has published more than 90 academic papers in authoritative domestic and foreign journals, including Economic Research Journal, Management World, World Economy, China Economic Quarterly, Journal of Financial Research, China Industrial Economics, Accounting and Finance, Pacific-Basin Finance Journal, and Economic Modelling. He has presided over more than 10 projects, such as Major Projects of the National Social Science Fund, Key Projects of the National Social Science Fund, and National Natural Science Fund Projects.

Sichong Chen, Professor and doctoral supervisor of School of Finance, Zhongnan University of Economics and Law, Deputy Director of Carbon Trading and Carbon Finance Research Center, Zhongnan University of Economics and Law; Ph.D., Business and Finance, Hitotsubashi University, Japan; He was a lecturer at Hitotsubashi University Business School in Japan and a visiting professor at Wellington School of Business at the University of Florida in the United States. Deputy general Manager of Housing Finance and Personal Credit Department, Hubei Branch, China Construction Bank; His research interests include international finance, asset pricing, financial institutions, political economy of finance, and carbon finance. Presided over the National Natural Science Foundation, International cooperation Research Fund, the Ministry of Education overseas study fund and other projects; The main achievements have been published in authoritative journals in both Chinese and English and in mass media such as Caijing, Economic Daily, Securities Daily, etc.