China Junk Bonds Suffer Longest Slide in Year on Property Slump

Published 11 September 2024, 06:53:21.137 GMT
By Trista Xinyi Luo

(Bloomberg) -- China’s junk dollar bonds suffered seven straight days of declines, the longest such stretch since August 2023, after weak home sales data underscored the country’s deepening real estate slump.

The market was still weak as of Wednesday morning, with China Vanke Co.’s dollar debt indicated another 1 cent lower, according to two credit traders. The average price of Chinese high-yield dollar bonds dropped to 85.6 cents in the seven days to Tuesday, the lowest in four months, according to a Bloomberg index.

A 4.25%dollar note due 2029 issued by China Jinmao Holdings Group Ltd. fell by another 0.8 cents on Wednesday to 73.2 cents, and is poised to touch its lowest price since May, according to Bloomberg-compiled data.

Investors are once again on tenterhooks as Chinese builders face pressure from continued declines in property sales, sparking worries about their liquidity. The renewed turmoil cut short a market rebound earlier this year, when China’s high-yield dollar bonds rallied to their highest level in three years amid government efforts to shore up the bruised property sector.

“The selloff came on the back of generally weak first half results, with the still-surviving Chinese developers reporting thin margins, weaker leverage and strained liquidity,” said Leonard Law, senior credit analyst at Lucror Analytics.

The country’s housing slump deepened in August despite government efforts to support the market. Shrinking sales from Country Garden Holdings Co., Vanke and other developers have also weighed on sentiment.

Meanwhile, the central government’s attempt to ease oversupply by urging more than 200 cities in May to buy unsold homes has so far produced sluggish results, with only 29 of them heeding the call.

“There is a realization that the series of policy measures, which drove the rally in April and May, has not been as effective as desired,” Law said. “Coupled with soft macro data, this has turned into a risk-off sentiment toward China high yield.”