China bonds stage record-breaking streak

Riskier debt surges even as second default by state-run business drags down bonds of largest companies  

China bonds stage record-breaking streak
The ATF CB50 Index climbed for a record 17th consecutive day.

(ATF) Chinese corporate and municipal bonds rose for a record 17th day Monday amid encouraging economic news and after the central bank pumped money into the financial system while holding down rates.

The nation’s higher-rated debt also advanced as investors grew optimistic again about the prospects of a global recovery from the coronavirus downturn with the announcement of another vaccine with a high efficacy rate.

The debt of state-owned enterprises fell the most in a week after a large miner defaulted on a bond payment, the second repayment failure by a government-linked company in weeks.

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The benchmark ATF China Bond 50 Index climbed 0.03%, the most in a week. That was the 17th day of gains, the longest winning streak in the index’s data, which goes back to 2015.

Yields on riskier Chinese bonds are rising as successive economic gauges show the economy is pulling out of a Covid-led downturn that saw the nation post its first quarterly contraction since the 1980s. Foreign investors are ploughing into Chinese bonds, including sovereign issues, because they carry higher yields than equivalent securities worldwide.

China's industrial output surged 6.9% in October from a year earlier, expanding for the seventh-straight month, and retail sales rose 4.3%. The People’s Bank of China injected 800 billion yuan ($121bn) in medium-term loans into the banking system and kept borrowing costs unchanged for the seventh-straight month. PBOC also said it was keeping the rate on one-year medium-term lending facility (MLF) loans to financial institutions steady at 2.95%.

On the Allindex sub-gauges, Enterprises fell 0.05% after Yongcheng Coal & Electricity, a coal miner in central Henan province, defaulted on a bond payment. That followed Liaoning province-linked Brilliance auto’s non-payment last month.

Among the biggest losers were bonds of China Southern Power Grid and Anhui Provincial Investment Group, whose yields climbed 0.05% and 0.01%, respectively.  

Analysts warned the latest default suggested the debtloads of many of China’s SOEs was unwieldy and that undermined confidence in the sector.

The Allindex Financial, Local Governments and Corporates indexes all climbed 0.04%

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