Maturity period.
Maturity is undoubtedly one of the most obvious characteristics of a bond issue. The built-in offer is a common attribute of numerous ruble bond issues, in fact, it is tantamount to a built-in put option. Bondholders have the right to demand repayment on the day of the offer at a fixed price, and should theoretically reduce the required yield. However, the issuer, in turn, after the offer at its discretion, may change the coupon to a lesser extent, thus forcing the current bondholders to abandon them in favor of more profitable securities with the same degree of risk. Thus, a call option for the issuer is obtained from a put option for the investor. This leads to the conclusion that within the framework of the created model the date of the nearest offer can be considered as the date of completion of issue circulation since on this day the bond can be redeemed both at the request of the issuer and at the request of the investor.
It is obvious that there is a directly proportional relationship between the term before maturity and the probability of default, as the uncertainty of the issuer's future company on the horizon of 30 years is clearly higher than on the horizon of 10 years. It is natural that investors expect higher coupon rates on longer-term bonds.
Built-in option.
The above-mentioned feature of the Russian bond market (when the bond is both revocable and returnable) justifies why the model of this study does not include such a factor as an embedded option. Typically, investors expect a slightly lower spread of return on bonds with an embedded put option than on bonds without an option. It is quite natural that in the case of an embedded call option the opposite effect should be expected - investors expect a larger spread. The hypothesis of revocable bond spreads has been empirically proven in many Western studies. Nevertheless, due to the fact that in the domestic bond market the embedded put option is in the overwhelming majority of cases leveled by the embedded call option, the importance of these countervailing factors is mutually destroyed, and the spread of the yield of bonds with such an option corresponds to the spread of the yield of a security without it with a maturity equal to the term until the next offer date of the bond in question.
The volume of a bond issue.
The size of the issue can be tentatively related to the volume of the secondary market, with the expected future liquidity of the issue. "Regardless of the credit quality of the bond issuer, the issue of bonds with a nominal volume of less than Rb 1bn is very likely to be characterized by a low level of liquidity. This characteristic is of great importance for investors who do not intend to hold bonds until they are redeemed. At the same time, the size of the issue may also indicate the scale of the issuer's business. However, there is another opinion about the impact of the issue volume on the spread - the larger the volume, the greater the burden of debt servicing falls on the company, respectively, and its financial stability is undermined. According to their logic, the growth of output is also associated with the growth of expected profitability. This study will test the hypothesis of the inverse relationship between the yield spread and the size of output.
First issue of the issuer.
There are also two opinions on this factor. The first one says that bonds of the companies to be placed for the first time will attract investors with a higher yield than securities of the issuers who have already had such experience. The logic is simple, already involved in the issues of the company have a credit history, therefore, the uncertainty on the probability of default becomes lower. The opposite hypothesis is that investors expect a higher risk premium in the event of repeated bond issues by the same issuer, as this increases its debt burden, which increases the risk of default. This study will test the hypothesis that the first placements for the issuer will be somewhat more expensive than the subsequent ones. In the regression model, the bank will be awarded the title of "novice" if it enters the public borrowing market for the first time in the last three years. This event will be introduced into the model as a dummy variable with the value of one, otherwise - zero.
Seniority.
The seniority of the bond has a high value in case of bankruptcy of the issuer. In the event of default, the requirements of the holders of the senior secured bonds are met at the beginning, followed by the holders of the senior unsecured bonds, etc. By choosing between two bonds with the same probability of default, a rational investor has the right to demand a higher risk premium in relation to a bond with a higher probability of loss in the event of default. This hypothesis has already been repeatedly formulated and proved in the works of Western researchers.