Biden risk bid keeps investors out of China bonds

Optimism after four years of tough Trump policies on China boost appeal of riskier assets; SOE bonds surge on news of new regulations to prevent defaults  

Biden risk bid keeps investors out of China bonds

(ATF) Chinese credits were little changed Thursday as investors clamoured for equities and other riskier assets on hopes that the new US administration would bring stability to markets and Sino-American ties.

Corporates led declines as it emerged that Tsinghua Unigroup, the Chinese conglomerate that has long sought to become a semiconductor powerhouse, is facing mounting debt woes while its key chip units fail to sell.

The ATF China Bond 50 Index climbed 0.01%. A 16-day 0.57% rally – the strongest start to a year in data going back to 2015 – ended Tuesday on concern that resurgent coronavirus clusters would prompt more economy-sapping lockdowns.

The transition of power in the US to Joe Biden raised investor appetite for risk, sending stock markets around the world higher. Investors are betting he will take a more conciliatory stance on China after four years in which Donald Trump launched a prolonged trade war with China and subjected its tech industry to punitive sanctions. 

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However, newly appointed Treasury Secretary Janet Yellen’s warning that those policies may not be quickly rolled back also weighed on fixed-income assets.   

Declines were led by the bonds of private companies. The Corporates sub-index slid 0.03%, the steepest decline since before Christmas. 

Best known for an unsuccessful $23 billion bid for US chipmaker Micron Technology in 2015, Unigroup shocked investors in November with a default on a 1.3 billion yuan ($200 million) bond. 

Including that bond, Unigroup has now either defaulted or had cross-defaults triggered on seven onshore and offshore bonds worth about $3.6 billion, according to Refinitiv data.

That’s sparked concern of another spate of defaults, which sparked a selloff in corporate and local government bonds last year.

Those non-payments were largely confined to companies within China’s sprawling state-owned enterprise sector. The creation of regulations to reform SOEs over the next three years has brightened the outlook for the sector. 

The Enterprise sub-index climbed 0.03% Thursday led by the 5.18% bond of CITIC Corporation, whose yield fell 0.15%. The gauge has climbed 0.39% in the past 14 days on easing concern of defaults.

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