Investor behaviour and reaching for yield: Evidence from the sterling corporate bond market

Abstract

We provide evidence on how corporate bond investors react to a change in yields, and how this behaviour differs in times of market‐wide stress. We also investigate ‘reaching for yield’ across investor types, as well as providing insights into the structure of the corporate bond market. Using proprietary sterling corporate bond transaction data, we show that insurance companies, hedge funds and asset managers are typically net buyers when corporate bond yields rise. Dealer banks clear the market by being net sellers. However, we find evidence for this behaviour reversing in times of stress for some investors. During the 2013 ‘taper tantrum’, asset managers were net sellers of corporate bonds in response to a sharp rise in yields, potentially amplifying price changes. At the same time, dealer banks were net buyers. Finally, we provide evidence that insurers, hedge funds and asset managers tilt their portfolios towards higher risk bonds, consistent with ‘reaching for yield’ behaviour.

Green credit policy and ESG performance for promoting sustainable economic system

“…In the case of assessment methods, local regulators and administrators can develop assessment methods for local green banks, as well as local green credit and banking conditions. The annual results of green bank assessments, as well as some local incentive policies such as interest rate repayment, appropriate financial deposit incentives, and risk sharing, can effectively and appropriately implement the assessment results to promote the sustainability of local green loans (Czech and Roberts-Sklar, 2017).…”

Flight from Liquidity and Corporate Bond Yields

“…Manconi, Massa, and Yasuda (2012) and Ma, Xiao, and Zeng (2020) find that fixed‐income mutual funds first sold more liquid asset classes, such as Treasury bonds, to meet investor redemptions, at the onset of the financial crisis (Q3‐Q4 2007) and during COVID‐19 pandemic, respectively. Czech and Roberts‐Sklar (2019) find that in the sterling corporate bond market, hedge funds, insurance companies, and asset managers that are typically net buyers, become net sellers in times of stress, such as the Taper Tantrum in 2013. Jian, Li, and Wang (2021) find that unlike tranquil market conditions, during heightened market uncertainty CBMF managers scale down liquid and illiquid asset classes proportionally.…”

The Impact of CEO Competence Heterogeneity and Investor Risk Appetite on Corporate Bond Yield- Take the Listed Companies of the Real Estate Industry as an Example

“…With the strengthening of the government's macro-control, especially the control of the real estate loan business by the banking industry and the increase in loan interest rates, the financing of real estate companies' investment projects appears more difficult along with the cost being increased, which has forced real estate companies to make major changes in financing methods-Bank loans have diversified into financing methods. Since the unbundling of Real Estate Company debt financing, corporate bonds have become an increasingly important financing channel for real estate companies (Czech & Roberts-Sklar, 2019). However, due to China's mounting supervision in 2017, the proportion of real estate corporate bonds has sharply fallen, and bond issuance rates have continued to rise.…”

“…Deng (2006) found that compared with developed countries, Chinese individual investors are more inclined to invest in risk-free assets when investing. Honggang (2012) analyzed the relationship between investor risk appetite, risk constraints and capital allocation, and used the VaR model to characterize investor risk appetite (Czech & Roberts-Sklar, 2019).…”