China junk dollar bonds extend record string of quarterly losses

CHINESE high-yield dollar bonds are capping a seventh-straight quarterly loss despite government efforts to stabilise the property sector, as fresh declines the past two weeks have re-emphasised the industry’s struggles. 

The developer-dominated market for such debt has lost 9.5% since the start of July, according to a Bloomberg index, threatening to post a fifth-consecutive quarter of double-digit declines. 

The junk notes have dropped 8% in September and are poised to erase the largest monthly return in a decade posted in August. The bonds were slightly lower Friday morning ahead of a week-long holiday in China, according to several credit traders.

Average prices on the securities hit a record low last month, before policy steps including guaranteeing some builders’ new onshore notes fuelled a rebound and kicked off hopes that the worst might finally be behind the market. But the high-yield dollar bonds’ gains stalled as September arrived despite continued efforts to support the property sector. 

In the latest policy move announced last Thursday, the central government is allowing nearly two dozen cities to lower mortgage rates for primary residence purchases. But analysts said it’s likely to provide only limited help to China’s struggling housing market. 

Meanwhile, a global bond rout and debt worries about CIFI Holdings Group Co prompted the largest drop in nearly a year for China’s junk dollar notes last Wednesday. 

“Most investors deem the property market entering into a prolonged structural downcycle and it just doesn’t make sense for them to bet on property bonds,” according to CreditSights analyst Zerlina Zeng. 

State help hasn’t restored funding channels for builders, she said. Home sales have fallen for more than a year, squeezing a key source of Chinese property firms’ liquidity, and few have been able to sell new debt offshore.

Record defaults on dollar bonds have resulted alongside the weakest first-half earnings for developers since at least 2008, with the country’s slowed economy and Covid-19 lockdown further depressing homebuyer sentiment. Bloomberg 

  • This article first appeared in The Malaysian Reserve weekly print edition.