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While the existing literature lacks a holistic approach to determining credit spreads and is limited to mostly developed countries, this study investigates credit spread determinants and their cross-country connectedness in the context of four emerging economies in Asia by incorporating bonds, market risk, macroeconomic and global factors.

This study utilizes principal component analysis for dimensionality reduction and variable representation. Furthermore, we employ the dynamic conditional correlation–generalized autoregressive conditional heteroskedasticity model to capture the cross-country credit spread connectedness between the variables.

The findings indicate that market volatilities are the most significant drivers of credit spreads, while global factors play a moderating role. Furthermore, the results provide compelling evidence of cross-country credit spread connectedness, with China as the primary transmitter and Malaysia as the primary receiver among the selected emerging economies.

This study addresses the limitations of previous research by extending the analysis beyond the commonly studied developed economies and focusing on emerging economies in Asia. It also employs a comprehensive approach to determine credit spread and explores cross-country credit spread connectedness in developing economies, thereby shedding light on financial risks and vulnerabilities within interconnected global financial systems.