China Bond Defaults Work Wonders to Spur Pricing for Risk
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Hong Kong Bond Connect at The Hong Kong Stock Exchange in Hong Kong, China on July 3, 2017.
Photographer: Anthony Kwan/BloombergThis article is for subscribers only.
Just as global investors get a new channel to access China’s $9.8 trillion onshore bond market, it’s starting to look like one that they might recognize.
Gone are the days when China’s corporate debt was all pretty much priced the same, with an implicit government backstop giving buyers little reason to demand higher returns from some borrowers over others. Things started changing in 2014, when the Communist Party leadership with little warning began to allow defaults. With a steady rise in delinquencies, investors are now distinguishing among issuers based on perceived credit quality.