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Andy Mukherjee

China Bonds: Connect With Caution

Investors should put themselves out of temptation's way by sticking with government and policy bank notes.
Photographer: Anthony Kwan/Bloomberg

With its sweet yields rendered even more seductive by a strengthening yuan, China's two-month-old Bond Connect has already earned a bit of a reputation as the siren song of the year for global investors. There are two ways to savor the allure, depending on whether you take your cues from a former Citigroup Inc. banker or a legendary Greek king of Ithaca.

Citigroup CEO Chuck Prince used liquidity to gauge how deeply one could dally with credit risk, and for how long. "As long as the music is playing, you've got to get up and dance," he told the Financial Times in July 2007. "We're still dancing." That would have sounded dodgy to Odysseus. He, too, wanted to enjoy the music -- and did -- but only after chaining himself to a mast of safety, and telling his soldiers (read, risk officers) not to cut him any slack even if he begged.