Credit risk concern weighs on China bonds

EximBank security leads declines among financials after China delays Kenyan debt repayments 

Credit risk concern weighs on China bonds

(ATF) China bonds were unchanged Wednesday on concern that credit risks are growing and may plague the world’s second-largest debt market this year.

Financial bonds were dragged down by the security of the the Export-Import Bank of China, which plunged after the Chinese government delayed payments on debt that Kenya owes the lender. 

The ATF China Bond 50 Index was unchanged, along with the Corporate and Enterprises sub-indexes. The Financial sub-index fell 0.01% and the Local Governments gauge added 0.01%.

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Credit risks that sparked a short selloff late last year have not gone away and efforts by companies to refinance their debt will lead to more defaults, China Merchants Securities warned.

In a report by Bloomberg an analyst at the company said that moves to stabilise the state-owned enterprise (SOE) sector, which suffered $30 billion of defaults last year, would take time to work through.

Analysts expect China’s expanding economy will likely be able to weather more defaults and corporate collapses as the cost of making markets more efficient.

The strength of China’s recovery from the pandemic downturn last year has made it difficult for Western asset managers to ignore the nations’ $16 trillion sovereign debt market. Analysts said more European investors are looking east in a move that’s likely to increase foreign holdings of Chinese bonds from the current 9.7%.

"Not all our clients invest in China's bond market, but they are all looking into it," said Sandor Steverink, head of Treasuries at APG, which manages a third of the assets of the $1.8 trillion Dutch pension industry.

China has delayed payments on $245 million of Kenyan debt to help the east African nation deal with the pandemic within its borders. The Export-Import Bank of China is one of the biggest lenders to the country.

Returns on the bank’s 4.11% bond fell 0.02%, the biggest decliner on the CB50 Index.

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