China’s Bond Rout Triggers Turmoil as Leverage Curbs Bite
- Funds managing wealth products are leading the selloff
- Chain reaction spreading signals debt tumble to continue
China's Bond Rout Triggers Chain Reaction
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Leverage, counterparty risks and maturity mismatch. China’s record bull run in bonds had all the signs of a bubble in the making.
Loose monetary conditions had fueled a sense of complacency, and all that was needed to trigger a reversal was for liquidity to tighten. When expectations for faster U.S. rate increases added to pressure from rising funding costs in China, the correction in the debt market -- which started in October -- turned into a rout. Bond futures plunged by a record last week, the 10-year yield surged by the most in two years and interest-rate swaps reached a 20-month high.