China funds buying dollar property bonds risks exporting bubble

Shanghai

EITHER China's bond investors know something about the nation's cash-strapped developers that global funds have missed or they are exporting a leverage-driven rally.

Dollar-denominated notes from China's property companies and other high-yield issuers jumped 5.5 per cent in October, the best month since February 2012, according to a Bank of America Merrill Lynch index. The yield premium on Evergrande Real Estate Group Ltd's 2018 bond over US Treasuries dropped 193 basis points in October to 708, near the lowest since January 2014.

Rating companies acknowledge that developers' finances have strengthened since Premier Li Keqiang allowed them to sell more bonds in the domestic market, with their issuance surging nine-fold to 163.7 billion yuan (S$36.21 bIllion) in the third quarter. It may take more for global investors to forget the lessons they learned from the April default by Kai…