China Dollar Bonds Show Least Stress Since Evergrande Meltdown
Stress in China’s $750 billion offshore dollar bond market has eased to the lowest level since China Evergrande Group’s debt woes worsened in 2021, after a raft of policy support and loosening of Covid restrictions.
Chinese offshore dollar bonds have in recent days extended one of their biggest rallies ever, after returning 6.5% in November to end 14 months of losses. Developer-dominated junk notes surged 20% last month, the biggest advance in over a decade, according to a Bloomberg index.
That all helped lower the stress gauge for the offshore market to level 4, the lowest in Bloomberg’s China credit tracker since August 2021, though still on the higher end of the band from 1 to 6. ↓↓
The rare easing of stress came as Chinese regulators issued a 16-point plan to financial firms aimed to boost the real estate market, and separately loosened builders’ access to pre-sale money, a key source of funds. In addition, the country’s mega banks vowed to extend at least $179 billion of financing help to developers. Further signs that China will accelerate an exit from Covid Zero spurred bullish bets across Chinese assets that markets have bottomed. ![]()
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The reaction to the policy changes has been swift. A case in point was $COUNTRY GARDEN (02007.HK)$ ’s dollar notes, which returned an eye-watering 404% in a month through early December, the best performer in a Bloomberg China junk dollar bond index.
“Risks of defaults have receded in the short term, and we still see scope for credit of quality developers to outperform,” said Chang Wei Liang, a macro strategist at $DBS Group Holdings (D05.SG)$ .
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