China’s yuan junk corporate bonds set for worst day in a decade
Stock euphoria is driving more cash from bonds to equities, as the Chinese government introduces stimulus measures such as key policy rate cuts
CHINA’S onshore high-yield debt market is suffering its worst day of trading in years, as investors are on the lookout for more government measures to boost the economy.
Yields of some corporate notes, which have been issued by Chinese companies and are rated “AA”, have soared by more than 30 basis points as of 4 pm on Wednesday (Oct 9), said two credit traders.
They are poised for the biggest daily jump since December 2014, indicated a Chinabond index. Yields of top-rated corporate notes also climbed about five to 10 basis points, putting them on track to log their fifth day of increases, the traders added.
China’s corporate notes have taken a hit since the central government introduced a slew of stimulus measures to support economic growth late last month. The support included key policy rate cuts and a pledge of as much as US$340 billion to support the stock market.
Its finance ministry will hold a briefing on Saturday to introduce moves to strengthen fiscal policy.
China’s stock market notched 10 straight sessions of gains until Oct 8, with the Shanghai Shenzhen CSI 300 Index – a key gauge – soaring 35 per cent.
The stock euphoria is also driving more cash from bonds to equities. As a result, wealth-management products including some bond-focused mutual funds are under mounting pressure to sell to meet redemption demands from retail investors, widening the declines.
“It is mainly a see-saw effect between the equity market and bond market,” said Meng Ting, senior Asia credit strategist at Australia & New Zealand Banking. Funds flowed into equities post-stimulus, which drove bond yields higher, she said.
Today, stocks retreated after several strong sessions, so the bond market could stabilise a bit after that, the strategist added. BLOOMBERG
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