Why Bonds Fail Differently? Explainable Multimodal Learning for Multi-Class Default Prediction
Abstract
In recent years, China's bond market has seen a surge in defaults amid regulatory reforms and macroeconomic volatility. Traditional machine learning models struggle to capture financial data's irregularity and temporal dependencies, while most deep learning models lack interpretability-critical for financial decision-making. To tackle these issues, we propose EMDLOT (Explainable Multimodal Deep Learning for Time-series), a novel framework for multi-class bond default prediction. EMDLOT integrates numerical time-series (financial/macroeconomic indicators) and unstructured textual data (bond prospectuses), uses Time-Aware LSTM to handle irregular sequences, and adopts soft clustering and multi-level attention to boost interpretability. Experiments on 1994 Chinese firms (2015-2024) show EMDLOT outperforms traditional (e.g., XGBoost) and deep learning (e.g., LSTM) benchmarks in recall, F1-score, and mAP, especially in identifying default/extended firms. Ablation studies validate each component's value, and attention analyses reveal economically intuitive default drivers. This work provides a practical tool and a trustworthy framework for transparent financial risk modeling.
Cite
@article{arxiv.2509.10802,
title = {Why Bonds Fail Differently? Explainable Multimodal Learning for Multi-Class Default Prediction},
author = {Yi Lu and Aifan Ling and Chaoqun Wang and Yaxin Xu},
journal= {arXiv preprint arXiv:2509.10802},
year = {2025}
}