Bonds Feb 25

State Council, PBOC downplay default risks

State Council, PBOC downplay default risks
China’s State Council.

(ATF) - The State Council's Covid-19 joint working group has introduced systems to provide precision financial services enabling the country to get back to work after the virus’ economic impact had increased bond defaults.

Peng Lifeng, deputy director of the Financial Market Department of the People's Bank of China (PBOC), said that since the outbreak the short term risk is on income and profitability and may affect the performance of bonds issued by related companies.

“After evaluation, we believe that the overall impact on the market is controllable,” Peng said, according to the People’s Daily.

He highlighted industries such as catering and tourism, which account for just 1% of the total bond market.

Since the outbreak, the PBOC has strengthened counter-cyclical adjustments to rejuvenate liquidity, sparking a delcine in bond financing costs.  

One-year and three-year AAA medium-term note yields are between 2.75% and 3.05%, about 30 basis points lower than before the Spring Festival. 

The decrease in bond financing costs is conducive to enterprises properly managing their debt, Peng said. In addition, PBOC has also set up a "green channel" for the issuance of bonds by virus-affected financial institutions and enterprises in order to funnel funding to struggling provate companies.

While a huge amount of corporate debt is set to mature this year, the annual increase has slowed since last year. 

“Therefore, we expect that the risk of bond defaults will be alleviated,” Peng said.