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The last Chinese market to give in under the pressure of the vast repression of Beijing companies: junk bonds.
Chinese companies account for the bulk of the roughly $ 300 billion high yield bond market in Asia, thanks to an increase in borrowing from the country’s heavily indebted real estate developers. But the investor optimism that motivated this borrowing has collapsed.
Stress has built up following a series of defaults and growing concerns over a few large issuers, including real estate giant China Evergrande Group. Sharp declines in the prices of its bonds and those of a few other large Chinese companies, along with concerns about tighter regulations to curb speculation and soaring house prices, have pushed the market to the brink of collapse.
“There is a crisis of confidence in China’s high yield debt,” said Paul Lukaszewski, corporate debt manager for the Asia-Pacific region at Aberdeen Standard Investments in Singapore.
According to the ICE BofA indices, the average yield on lower-grade US dollar bonds issued by Chinese companies exceeded 14% in late July and early August, about 10 percentage points above the average yield on junk bonds issued by American companies.
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