International Corporate Bond Market : Uncovering Risks Using Machine Learning

In this paper, we explore what factors drive expected corporate bond returns all over the world. With a novel dataset, and utilizing machine learning models, we find there is strong predictability of corporate bond returns in international markets. However, the documented factors that drive bonds in the U.S. and non-U.S. developed markets are substantially different from factors that impact bonds in the emerging markets, where inflation, downside risk, duration, illiquidity, and volatility are more influential. Moreover, U.S.-based equity and bond factors do not contribute predictive power to non-U.S. corporate bonds, indicating that international corporate bond markets are not well integrated