Bond Market Troubles Could Signal Bursting of China Property Bubble

A widening of spreads on dollar bonds issued by developers could signal the imminent bursting of China’s property bubble. These bonds have been the worst performing of all US-denominated, non-financial, Asian corporate debt, and are now at a 2.26 percent premium to US Treasuries. This is a clear sign that investors are demanding greater yields to lend to China property firms, as they expect borrowers will have a harder time meeting debt payments amid a government clampdown down on lending.

As a result, Goldman Sachs Group Inc. and Credit Suisse Group AG cut their profit estimates for Chinese real estate companies after a 12.8 percent jump in real estate prices in April from a year earlier spurred the state to increase regulation.

“New issues by Chinese developers will stall for the time being,” Vince Chan, the Hong Kong-based chief credit strategist with Amias Berman & Co. LLP, said in a phone interview. “Investors need handsome rewards for getting exposed to weaker fundamentals.”

Source: Bloomberg

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.