Premier Li Keqiang has announced stimulus measures as an economic downturn threatens the ability of regional governments and companies to repay existing debt.
China’s credit-market gauges show improving risk appetite as the government demonstrates its ability to limit fallout on banks and the economy from defaults.
The spread between the two-year sovereign yield and the similar-maturity interbank interest-rate swap, a gauge of financial stress, narrowed 71 basis points this month to 14 basis points on April 23. It reached 121 basis points on Feb. 19, the widest in Bloomberg data going back to 2007. The yield premium of five-year AA rated debt, the most common grade for local-government financing vehicles, over top-rated notes fell to a four-month low of 121 basis points on April 23.
While Premier Li Keqiang’s government allowed privately-owned Shanghai Chaori Solar Energy Science & Technology Co. (002506) to become the first onshore bond issuer to default in March, it has sought to curb more damaging failures. Policy makers announced plans to ease pressure on LGFVs by funding urban projects with private capital and municipal notes. The eleventh-hour rescue in January of a 3 billion-yuan ($481 million) product arranged by China Credit Trust Co. gave regulators time to introduce tighter rules on shadow banking.
“The fear earlier this year that credit events could have wider impact on the economy or the financial system has waned,” Liu Changjiang, a Shanghai-based fixed-income analyst at Essence Securities Co., said on April 23. “The market almost has the consensus that the LGFV bonds are safe, and as they can offer high yields, why not put money there?”
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Đăng ký: VietNam News
