Yields yuan corporate notes of five with the highest scores jumped 30 basis points last month to 4.74 percent, the highest in nearly December. The Shanghai Composite Index, the benchmark for the biggest stock market in China, jumped 24 percent in the same period, the most among the major stock indicators worldwide.
People's Bank of two interest rate cuts in China since November prompted the rally actions even if they have not been able to reduce business financing costs or mitigate the debt repayment difficulties. Live coverage Technology Group Co. became the second company to default on the China onshore bond market last week amid the weakest economic growth since 1990, while Kaisa Group Holdings Ltd missed interest payments after was involved in a corruption investigation.
"With the stock market works so well, it's more natural funds choose to invest in stocks instead of bonds, which resulted in the lack of investor demand for new bonds and thus higher yields" said Li Zhang, a credit analyst with Beijing-based Guotai Junan Securities. "Due to the high performance required, some issuers shot deals."
Call For Fairness:
Guangdong Roads & Bridges Construction Development Co. delayed 2 billion yuan (322 million) bond issue, which was originally scheduled for April 2, citing major market fluctuations, according to a company statement on the website of ChinaBond.
Companies raised 205 billion yuan of domestic investors through IPOs in China in the first two months of the year, double the same period of 2014, according to the China Securities Regulatory Commission. The bond rose just 7 percent to 581.6 billion yuan, the site data show China Bond.
"It's safe to assume when more funds go to market shares, end up with fewer obligations," said Liu Dongliang, senior bond analyst at China Merchants Bank in Shanghai. "We have noticed more funds have been established to invest in equity and banks were selling more wealth management products that use stocks as underlying asset."
The jump in stocks in Shanghai pushed revenues give up only 0.08 percentage points higher than for the best corporate notes due in 10 years Wednesday, making it more expensive hand over bonds since 2010.
Shifting assets:
As investors turn to riskier assets, the return of sovereign benchmark bond jumped to 10 years for seven consecutive weeks to Friday, the longest series of increases in Bloomberg data going back to 2007. It is now to 3.62 percent, near its highest in four months. The yield as maturity of AAA corporate securities is 4.89 percent, after touching a high of five percent three months March 31.
"Chinese Government Bonds and notes with high marks seen the biggest drop in prices because yields of these notes can not cover the cost of funds for many investors," said Zhang Guotai Junan. "In addition, there have been many high-quality bonds offer recently and it is likely to continue in the short term which is also a pressure on prices."
Offers the best rated debt are likely to flood the market that China encourages municipal authorities to sell bonds directly, rather than through local government financing vehicles. Local authorities will issue at least 1.6 billion yuan debt this year, quadrupling from 2014, according to the Ministry of Finance estimates Mars.
Big Problem:
More money will probably flow into the actions that the government encourage the financing by selling shares, said Gao Qunshan, credit chief analyst at Industrial Securities in Shanghai. PBOC Governor Zhou Xiaochuan said in companies seeking funding through March the stock market can help the economy.
The Chinese economy has slowed the pace of the weakest expansion since 2009 last quarter that decision makers to implement a reform program while mitigating targeted stimulus to growth. Gross domestic product grew 7 percent in the three months to March from a year earlier, the statistics bureau said in Beijing Wednesday,
"This is a big problem that the actual borrowing costs are yet to come down after the rate cuts," Gao Industrial Securities said. "We expect the government to come out with more policies against this problem. The whole market is watching."
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