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China's New Bond Rules Seen Threatening Losses for Yield Hunters

  • CSDC said to plan to only allow AAA bonds as loan collateral
  • Yield premiums on low-rated notes may rise, Guotai Junan says
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Photographer: Wu Hong/EPA

China’s plan to tighten rules governing the use of corporate notes as collateral for short-term loans is fueling concern that yield hunters may face losses.

China Securities Depository and Clearing Corp., which oversees notes in the nation’s smaller exchange-traded market, plans to allow financial institutions to use only AAA rated company securities as collateral for short-term loans, people familiar with the matter said Tuesday. The plan will make bonds rated below that level less liquid, likely driving up yield premiums, according to analysts at Guotai Junan Securities Co. and SWS Research Co.