Chinese junk bonds set record low as property crisis spreads

CHINESE junk dollar bonds have dropped to a record low, as a property crisis sparked by a crackdown on excessive borrowing and a slide in home sales show few signs of turning around without more policy steps.

The notes, dominated by real estate firms, fell 0.3 cent on the dollar to 55.7 US cents on Monday (Oct 17), according to a Bloomberg index. Prices reached 56 US cents in August before some government support fuelled the biggest monthly gain in a decade. But that rally faded like others this year. The market slid for a fourth-straight week through Friday in the longest streak since July.

What began as a downturn in the housing market sparked by a government clampdown on excessive borrowing and real estate speculation in 2020 has since snowballed into record defaults by developers including property giant China Evergrande Group. Some homebuyers have even initiated unprecedented mortgage boycotts.

In a speech Sunday to open the 20th Communist Party congress, President Xi Jinping gave few signals of any major changes regarding housing market policies and Covid rules that have also hampered the sector.

Investors have been on the lookout for any further policy steps after builders stalled many projects amid a persistent slump in home sales. But recent developments have shown that even efforts the market had initially cheered aren’t by themselves enough to staunch the pain.

A case in point was Shanghai-based CIFI Holdings Group, which defaulted earlier this month when it failed to pay a coupon on a Hong Kong dollar convertible bond. That was particularly worrying because the firm was considered a barometer for the broader success of a new rescue effort by Beijing that emerged in August to use state guarantees to help a select group of developers access domestic funding.

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Chinese developers’ shares have also been suffering. A Bloomberg Intelligence gauge of the sector reached its lowest since January 2012 last week. BLOOMBERG