The Impact of Value Jumps on Bond Spreads: Based on ChinaBond Valuation

This paper examines the impact of value jumps on bond liquidity and credit spreads, an area of growing importance in structured risk. Despite the recognition of the predictive role of value jumps in asset pricing, their impact on the bond market, particularly on liquidity spreads, remains less explored. Using ChinaBond Valuation, an authoritative third‐party valuation data, this study overcomes limitations posed by sparse transaction data and biased ratings in the developing credit bond market, and reveals that value jumps increase both bond liquidity and credit risk spreads, with downward jumps exerting a stronger influence. We identify that, value jumps do not lead to significantly higher spreads for bonds with inherently high default risk but for those opaque and illiquid, implying that value jumps in the bond market transmit more of a sentimental liquidity risk than substantive default risk. Meanwhile, we confirm that value jumps incorporate both public and private information, and extreme heterogeneous risk mainly elevates bond credit spreads.