The latest Chinese market to buckle under pressure from Beijing’s wide-ranging corporate crackdown: junk bonds.
Companies from China make up the bulk of Asia’s roughly $300 billion high-yield dollar bond market, thanks to a surge in borrowing by the country’s heavily indebted property developers. But the investor optimism that drove that borrowing has collapsed.
Stress has been building following a string of debt defaults and growing concern about a few large issuers, including property giant China Evergrande Group . Sharp price declines in its bonds and those of a few other large Chinese companies, plus concerns about tighter regulation aimed at reining in speculation and soaring housing prices, have pushed the market over the edge.
“There’s a confidence crisis in Chinese high-yield debt,” said Paul Lukaszewski, head of corporate debt for the Asia Pacific region at Aberdeen Standard Investments in Singapore.
The average yield of non-investment-grade U.S. dollar bonds from companies in China topped 14% in late July and early August, around 10 percentage points above the average yield of junk bonds issued by American companies, according to ICE BofA Indices.
