Could China's Bonds Spike Global Rates?

Faltering Bonds Condense Risk as Builder Collapses: China Credit

By Justina Lee

China’s faltering bond market is forcing banks to pick up the slack, spoiling Premier Li Keqiang’s efforts to spread financial risks as defaults extend from solar companies to real-estate developers.

New notes issued minus maturing securities slumped 64 percent to 133 billion yuan ($21.5 billion) in the first two months of 2014, while new yuan loans made up about 69 percent of total credit in February, the most in seven months, according to central bank data. The yield on five-year company securities rated AA- jumped 128 basis points in the past year to 7.71 percent yesterday, compared with an average 5.64 percent on high-yield U.S. debt, according to a Bank of America Merrill Lynch Index.

The bonds of developers slumped yesterday after government officials familiar with the matter said Zhejiang Xingrun Real Estate Co. collapsed with 3.5 billion yuan of debt due, two weeks after Shanghai Chaori Energy Science & Technology Co. became the first onshore bond issuer to default. Over-reliance on state bank loans concentrates risks in the financial industry and puts funding out of the reach of smaller firms, according to Citigroup Inc.

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When Bonds Collapse - so do equities. so does real estate - these are dangerous events and times. - Investors' Insights, March 21, 2014