China's Bond Leverage Tops $1.2 Trillion in Replay of Stock Boom
- Sinking bond yields boost appeal of using borrowed funds
- Authorities seen using incremental curbs to cool the market
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Five months after a debt-fueled rally in Chinese stocks turned into a $5 trillion rout, the bond market is testing authorities’ ability to contain leverage without sparking a crash.
Outstanding repurchase agreements in the nation’s interbank market, used by debt investors to amplify their buying power, surged to 8.01 trillion yuan ($1.25 trillion) in November, the highest level since at least 2012. Traders had an estimated 798 billion yuan of the contracts in China’s exchange-traded market as yields on corporate and sovereign bonds hovered near the lowest levels in at least five years, increasing the appeal of using borrowed funds to boost returns.