China Lets Local Authorities Convert Debt Into Muni Bonds

China will allow regional authorities to convert some high-yielding debt into municipal bonds in a bid to cut financing costs on liabilities brokerages say have topped $3 trillion, sparking speculation investors may shoulder losses.

The government will permit as much as 1 trillion yuan ($160 billion) of the obligations to be swapped into local-government notes that have lower yields, the finance ministry said in a statement on its website dated March 8. That may reduce interest payments by as much as 50 billion yuan a year, allowing authorities to boost spending, it said. The statement didn’t specify what kind of debts and creditors are involved.