China bonds climb as default fears ease

SOEs snap selloff as vaccine, Biden stability hopes feed into Asian markets

China bonds climb as default fears ease
The benchmark ATF China Bond 50 Index climbed 0.01%

(ATF) Chinese corporate and municipal bonds rose Wednesday as investors gauged a selloff in the bonds of state-owned enterprises (SOEs) was overdone.

The Enterprises sub-index climbed the most in two weeks, ending a losing streak that had been sparked when a spate of bond defaults prompted a crackdown by authorities on micro lending.

The ATF China Bond 50 Index climbed 0.01%, led by the SOE-based Enterprises index, which rose 0.02%. Xi’an Hi-tech Holding was among the biggest winners; the yield on its 6.12% bond dropped 0.09 percentage points. Agricultural Development Bank saw the rate on its 4.39% security decline 0.29 percentage points.

SOE bonds have fallen 0.30% since since warnings that more defaults may follow miner Yongcheng Coal and Electricity, which bilked on a $151-million payment of one of its bonds.  

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An exclusive report by ATF revealed that more than 120 SOEs had fallen into default by failing to make debt repayments in recent weeks, creating panic among investors.

The broader Chinese credit markets, which behave similarly to equity markets, have been boosted in the past week by news that three Covid vaccine candidates have very high efficacy rates. Investors hope the rapid deployment of treatments can end the cycle of coronavirus-mitigation lockdowns that have sent the global economy into a downward spiral.

Donald Trump’s agreement to allow President-Elect Joe Biden to begin the transition to a Democratic government in January also buoyed markets hopeful that it would usher a new era of stable leadership in the US.  

Among the other sub-indexes, Financials, Local Governments and Corporates all climbed 0.01%.

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