(Bloomberg) -- Chinese developer stocks and high-yield dollar bonds fell, as market optimism generated by Beijing’s policy vows further eroded after leaders reaffirmed support for strict Covid policies.
A Bloomberg Intelligence index of property stocks fell as much as 4.1% Friday, while a gauge tracking junk dollar notes was on pace to fall for the third week in the past four.
The nation’s ailing property sector poses a serious risk to China’s economic growth target without “immediate and substantive policy easing at the national level,” according to Pacific Investment Management Co.
Key Developments:
- China’s Leaders Warn Against Questioning Covid Zero Policies
- Evergrande Sales Jump to 3.09b Yuan in April From 20m-30m Yuan
- Chinese Courts Holding Up as Defaults, Bankruptcies Mount: S&P
- Evergrande Unit Gets 6-Month Extensions on Yuan Bond Payments
Stagflation Threat Sends Credit Risks Soaring to Two-Year High (12:28 p.m. HK)
Fears about slowing economic growth and faster inflation are again leaving the credit market especially vulnerable amid a broader rout in risk assets, with the cost of insuring debt against default jumping to a two-year high.
Credit-default swaps for Asia ex-Japan high-grade debt widened about 4.6 basis points Friday to around 131, according to traders. That’s the highest since April 2020 and leaves them set for the worst weekly blowout in eight months, an iTraxx index shows. A North American gauge also hit its widest in about two years.
Chinese High-Yield USD Bonds on Tap for Third Down Week in Four (9:47 a.m. HK)
Chinese high-yield dollar bonds fell 0.5 cent to 2 cents on the dollar Friday morning, according to credit traders, dropping alongside stocks in Asia after an overnight slump in U.S. equities.
The Bloomberg index tracking the country’s junk-rated notes is on pace to drop for the third week in the past four.
Sino-Ocean Capital Buys $67m of Dollar Bonds Issued by Unit (9:13 a.m. HK)
Sino-Ocean Capital Holding Ltd. has bought $67 million of two dollar bonds issued by unit Mega Wisdom Global Ltd., according to a late Thursday filing to the Singapore Exchange (OTC:SPXCY).
The purchases involved $64 million of a note due October 25 and $3 million of a bond due 2023, both of which Sino-Ocean Capital is a guarantor.
Swaps Committee to Rule If Sunac in Failure-to-Pay Credit Event (8:00 a.m. HK)
The Credit Derivatives Determinations Committee agreed to consider whether a failure-to-pay credit event occurred with respect to Sunac China Holdings Ltd., according to a statement on its website.
The committee will meet on May 6 to discuss whether credit-default swaps can be triggered.
Chinese Courts Holding Up as Defaults, Bankruptcies Mount (8:00 a.m. HK)
China’s legal system “has become much more adept at handling defaults,” said S&P Global (NYSE:SPGI) Ratings while predicting corporate failures are poised to stay elevated.
Bankruptcy cases in domestic courts have grown eightfold since 2018, but the legal system has kept pace, said Charles Chang, the firm’s Greater China country lead for corporates.
Still, “the rapid rise in failed firms in corporate China creates contagion risk and a greater need for orderly post-default resolution.”
Evergrande Unit Gets Bond Extensions (8:00 a.m. HK)
Evergrande’s onshore unit won bondholder approval to extend payments originally due Friday by six months on two yuan notes, according to filings to the Shanghai Stock Exchange.
The put date and coupon for the subsidiary’s 6.8% yuan bond due 2024 have been changed to Nov. 6, according to the filing.
Beijing Risks Further Meltdown Without Action: Pimco (8:00 a.m. HK)
China’s 2022 economic-growth target is at serious risk from the ailing property sector absent “immediate and substantive policy easing at the national level,” says Pimco.
China risks “further sector meltdown both in the physical property and capital markets,” credit researchers Annisa Lee and Frank Chen wrote in a blog post dated Thursday.
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