Stronger data likely to buoy bonds

Anticipated signs of economic improvement seen overshadowing past weeks' concern about defaults

Stronger data likely to buoy bonds

(ATF) China’s non-sovereign bonds may shake off two weeks of volatility with an anticipated improvement in economic data this week. The reports may overshadow recent concern about corporate indebtedness.

Important purchasing managers indexes (PMIs) are expected to show China’s economic recovery from the coronavirus downturn back on track after a slowdown in recent readings.

The accelerating transition from a Trump presidency and the rolling out of vaccines, which could begin at the end of next week in the US, is also likely to buoy riskier assets including Chinese credits.

“For the upcoming release in November, our projection based on the first 26 days of the month point to some improvements for both manufacturing and non-manufacturing sentiment,” wrote Alicia Garcia Herrero and Jianwei Xu at Natixis.

The ATF Benchmark China Bond 50 Index closed the week 0.04% higher despite a 0.09% decline in the Enterprise sub-index, which tracks state-owned enterprises (SOEs). The sub-gauge has fallen 0.40% in the past two weeks following revelations in ATF that more than 120 SOEs had recently defaulted on bond repayments. 

That prompted the government to announce stricter oversight of SOEs and banks to strengthen corporate balance books. The move is seen as vital at a time when financial planners are busy promoting China’s capital markets to overseas investors. 

Indeed, more announcements are expected this week to increase foreign access to the nation’s economy, a move that’s also likely to add to risk-on sentiment in the week.  

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