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Shuli Ren

The Time Bomb in China’s Bond Market

Off-budget local government debt may look attractive to investors, with juicy corporate bond yields and quasi-sovereign credit status. Be careful.

Troubles are piling up.

Troubles are piling up.

Photographer: VCG/Visual China Group

Last August, when a paramilitary group almost became the first default among local government financing vehicles, few would have thought that another asset frenzy was afoot in China. 

Yet off-budget local government debt is having a fun ride. After that scare, yields for AA rated, three-year bonds issued by local government financing vehicles compressed to 3.9 percent from about 5 percent.