Chinese credit beats Asian peers as Huarong worries fade

(Bloomberg) – Despite China’s regulatory crackdown on private companies and the China Evergrande group’s worsening woes, the nation was the place to go in Asia for corporate bond yields in August, and the optimism could persist.

That’s because one of the worries hanging over the nation’s bond investors eased after the country’s bad debt manager, China Huarong Asset Management Co., was bailed out.

Chinese banknotes rebounded in August after two months of losses, with a total return on corporate dollar debt of 1.5%. This is its best performance since July of last year and beat a 1.1% gain in broad Asian emerging market bonds and a 0.7% return among Asia peers. Southeast, according to Bloomberg indices.

Pacific Investment Management Co. is increasingly optimistic about future growth in Asia, with the company prioritizing cyclical sectors such as auto and transportation companies in China and India, and selective consumer service providers in the region, Stephen Chang, a Hong Kong-based portfolio director, told Bloomberg TV.

The fate of Evergrande, the most indebted developer in the world, remains a concern for the Chinese bond market, however. With total liabilities close to an all-time high, the company must accelerate asset sales and continue to aggressively cut apartment prices to generate enough cash to meet its obligations.

Why China is bailing out Huarong but punishing others: Shuli Ren

Nearly 20 Huarong notes rallied in August, making them the best performers in the Chinese dollar credit market. The country’s high-yield dollar debts led the rally with a return of 3.1% last month, compared to a 1.1% gain for the country’s high-quality bonds and a 2.4% increase for all Asian low-rating debt.

China’s high-yield credit spread was large enough to sustain a “short-term respite,” but medium-term risks for such debt remain as the government tries to crack down on excesses in the country’s real estate sector, according to Winson Phoon, head of bond research at Maybank Eng Kim Securities Pte Ltd. in Singapore.

Asia

Investment grade Asian dollar bond spreads widened 2 to 4 basis points on Wednesday, while the premium for Chinese high-yield debt was little changed, traders said.

Seven issuers in Asia hit the primary market on Tuesday as signals intensify that central banks around the world may withdraw some stimulus measures soon. to 1.97 trillion yuan ($ 305 billion) as of June 30, as the group’s cash and cash equivalents plunged to their lowest level in six years

Europe

The issuance of hybrid corporate bonds in Europe is set to surpass the record of more than 50 billion euros set in 2020 as investor demand remains strong in a low interest rate environment, a Scope Ratings analyst Azza Chammem writes in a note.

Pan-Asian life insurer AIA Group Ltd. plans to sell euro-denominated bonds for the first time to diversify its funding and buyer base, according to an investor presentation Austria plans to issue its very first green bond next year, joining the herd of nations seeking to issue tailor-made debt for investors with an environmentally conscious mandate

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The Markit CDX North America Investment Grade Index, a risk indicator in debt markets, rose on Tuesday morning after hitting its lowest level in more than six months on Monday, as investors assess the path of the recovery of the world central bank.

Retail teardown has slowed, with fewer bankruptcy filings and store closings in the first half of 2021 compared to the past two years, according to a new report from consulting firm BDO USA

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