Coupon payments, issuance uncertainty weigh on bond gauges

Sentiment still low after officials urge reduction of debt sales by local authorities

Coupon payments, issuance uncertainty weigh on bond gauges
The bonds of China’s banks have been hardest hit by today’s selloff. Photo: Reuters 

(ATF) Returns on Chinese financial bonds fell the most in eight months as a second day of coupon payouts pushed investors to the wings.

Sentiment remained in the doldrums as market participants continued to digest the potential impact of a slew of new issuance set to hit the market this week amid warnings that the market had become risky.

The benchmark ATF China Bond 50 Index of AAA rated Chinese credits fell 0.05% for a second day to take the gauge to 106.73. 

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A sub-index of financial companies fell 0.15%, the steepest drop since July, as the 3.1% bond of Bank of Beijing due in March 2025 and the 7.25% security of CCB Financial Asset Investment, also due in March 2025, made coupon payments. 

Bonds tend to decline after coupon obligations are met because that reduces the pool of interest the debt will pay out before maturity.

China’s cities, counties and provinces are on track to issue about 241 billion yuan ($37.08bn) worth of bonds this week, according to a Reuters tally of issuance filings, compared with a total of 60 billion yuan for the month of February.

But officials have warned that too much supply is likely to create risks and have urged issuers to pull back their funding plans. State-owned-enterprises and private companies benefitted from record local authority bonds sales since the pandemic ravaged China’s economy early last year. 

The securities have largely been sold to pay for local economy-boosting infrastructure projects for which domestic companies bid.

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