China Update
CSI 300 Index and its amazing run from mid Nov.
Big news this week.
Dec. 9 (Bloomberg) — China stepped up efforts to curb the expansion of opaque local-government debt, sparking a tumble in riskier bonds and fueling the stock market’s biggest retreat in five years.
Bonds rated below AAA or sold by issuers graded lower than AA are no longer allowed for use as collateral in short-term loans obtained through repurchase agreements, the nation’s clearing agency for exchanges said yesterday. Notes issued by local government financing vehicles paced losses in lower-rated debt today, while the nation’s benchmark stock index sank 5.4 percent as some investors sold liquid assets as an alternative source of cash.
http://www.bloomberg.com/news/2014-12-09/china-s-rate-swaps-surge-most-since-june-2013-as-bonds-tumble.html
http://www.bloomberg.com/news/2014-12-09/china-s-rate-swaps-surge-most-since-june-2013-as-bonds-tumble.html
Followed by these.
Dec. 12 (Bloomberg) — A local government financing vehicle in China’s eastern province of Jiangsu has delayed a bond sale after authorities ruled it wouldn’t be backed by the state.
Dec. 12 (Bloomberg) — China plans to establish a fund to support troubled trust firms as repayment risks accumulate in the 13 trillion yuan ($2.1 trillion) industry.
Under rules jointly issued by China Banking Regulatory Commission and the Ministry of Finance, each trust firm is required to contribute 1 percent of their net assets to the fund, while each trust product will pay 1 percent of the money raised, according to a statement today. http://www.businessweek.com/news/2014-12-12/china-to-establish-fund-for-troubled-trust-firms-as-risks-rise
China Trust Protection Fund May Start With 40b Yuan: Securities
(Bloomberg) — Planned protection fund for nation’s trust industry may start with about 40b yuan, the China Securities Journal reported, citing an unidentified official with the banking regulator.
Bond Indices.
Bloomberg China Local Sovereign Index
ChinaBond High Yield Corporate Bond Total Return Index
PBOC Balance Sheet is bigger than the Fed’s.
Conclusion : Tough times ahead.
Leaving you with the bond prices (unverified).
TH, quick question – the Bloomberg article stated “Bonds rated below AAA or sold by issuers graded lower than AA are no longer allowed for use as collateral in short-term loans obtained through repurchase agreements, the nation’s clearing agency for exchanges said yesterday. ”
Is it possible that an issuer rated AA (or below) can issue a bond rated AAA? I guess technically yes, but very unlikely? So for all practical purposes the requirement is for the issuers to also be rated AAA?
Yes. It is possible if the issuer has an SPV or the issue is securitised or guaranteed.
Like in the case of the recent Protelindo SGD issue which is guaranteed.