alert! - Market Crash Coming Soon - China Trust about to default - JPM Gold .
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Default-Swap Bets at 14-Month High on Trust Flops: China Credit
2014-01-27 03:41:48.322 GMT
(To be sent story, click here. For more, TOP CM.)
By David Yong
Jan. 27 (Bloomberg) -- Credit traders have taken out the
most protection on China’s debt in 14 months just as the world’s
second-biggest economy faces a default test in its $1.7 trillion
market for trust products.
The net notional amount of credit-default swaps outstanding
on Chinese sovereign bonds totaled $9.125 billion on Jan. 17,
the most since November 2012, according to weekly figures
published by Depository Trust & Clearing Corp. December’s 12
percent jump to $9.066 billion was the biggest monthly gain
since October 2011, the figures indicate. The cost of the
contracts surged 25 basis points since Dec. 31, poised for the
largest monthly increase since a record cash crunch in June.
Credit risk is mounting amid speculation a 3 billion-yuan
($496 million) trust product distributed by the nation’s biggest
lender will fail to repay holders this week. Borrowing costs for
debtors are also climbing as the government eases interest-rate
controls. Local-government financing vehicles set coupons of
more than 9 percent in two debt sales last week, levels not seen
since at least 2012, according to Nomura Holdings Inc.
“Any news related to China can have sentiment impact on
global risk assets and this is really the issue in the short
term,” Damien Buchet, head of emerging-market fixed income in
Paris at AXA Investment Managers, said by phone on Jan. 23.
“This is the reason why some people are buying China CDS.” AXA
manages 550 billion euros ($750 billion) globally.
Costlier Protection
Five-year credit-default swaps protecting against a default
on Chinese government debt reached 105 basis points on Jan. 24
in New York, the most since Aug. 30, according to CMA prices.
The cost is little changed today and set to climb for a second
month, after almost halving to 65 from 121 in the August-
November period.
The yield on the 4.08 percent note due August 2023 fell one
basis point to 4.49 percent as of 11:12 a.m. in Shanghai, from
yesterday when markets were open for an extra trading session
before the week-long Lunar New Year holiday begins on Jan. 31.
Ten-year bond yields surged 104 basis points in the second half
of last year, touching a record 4.72 percent in November,
ChinaBond data show.
Assets managed by China’s 67 trusts soared 60 percent to
$1.67 trillion in the 12 months ended September, according to
the China Trustee Association. The trust product maturing this
week, known as Credit Equals Gold No. 1, was set up to lend
money to a coal miner that subsequently failed.
Distributor Industrial & Commercial Bank of China Ltd., the
trust issuer and the Shanxi provincial government may bail out
investors, the Guangzhou-based Time-Weekly reported on Jan. 23.
Shanxi’s financial office denied it would pay a 50 percent share
of the debt, while ICBC Chairman Jiang Jianqing told CNBC in
Davos, Switzerland that the incident will be a lesson on risk
for investors.
S&P Warning
Standard & Poor’s expects the product to fail, according to
a Jan. 24 statement in Hong Kong, and said any bailout by ICBC
may trigger a review of its assessments of both the lender and
China’s banking industry. “Chinese banks are unlikely to bail
out high-yield wealth management products unless the banks
happen to be the originator of the products,” Senior Director
Qiang Liao wrote in the statement.
China’s 25.9 trillion yuan bond market is dominated by
state-backed issuers and has yet to have its first default. As
liabilities are rolled over or reorganized, a “debt snowball”
threatens to trigger a financial crisis, according to Haitong
Securities Co.
LGFV Debt
Liabilities at non-financial corporates may rise to more
than 150 percent of gross domestic product in 2014, Haitong,
China’s second-biggest brokerage, said this month. The amount
owed by local government financing vehicles surged 67 percent
from the end of 2010 to 17.9 trillion yuan as of June 30,
according to an official audit released this month. Everbright
Securities Co. estimates they will need to repay a record 299.5
billion yuan of bonds this year.
“If the market sees serious credit risks, local
governments’ financing channels will be closed,” Xu Gao, chief
economist at Everbright in Beijing, said in a Jan. 20 phone
interview. “The consequence is not what top leaders can accept
and would lead to a hard landing of the economy.”
S&P said it does not expect local-government bonds to
default in 2014.
“Amid perceptions of growing financial risks in the
country, the central government appears to be wary of
destabilizing sentiment through major disruptions, such as a
default,” Kim Eng Tan, an S&P credit analyst in Singapore, said
in a Jan. 24 statement. “However, China’s creditworthiness
could deteriorate if indebtedness continues to grow rapidly,
including from local and regional governments.”
Strained Finances
More than 50 percent of the LGFVs do not generate enough
cash to pay the interest on their debt and so rely on new
borrowing and government subsidies to finance operations, Nomura
estimated in September, adding that a 100 basis point increase
in borrowing costs would boost the ratio by 10 percent.
“We continue to expect defaults to occur in the corporate,
LGFV, and the shadow banking sectors in 2014,” Zhang Zhiwei, a
Hong Kong-based economist at Nomura, wrote in a Jan. 22 report.
Citic Securities Co., China’s largest brokerage said losses
on the Credit Equals Gold No. 1 trust product would have limited
impact on China’s financial markets.
“It’s not like a default on the bond market,” Yang Feng,
a Beijing-based bond analyst at Citic, said in a Jan. 20 phone
interview. “I still don’t believe there will be any defaults on
the bond market this year. The cost would be too high for local
governments.”
2014-01-27 03:41:48.322 GMT
(To be sent story, click here. For more, TOP CM.)
By David Yong
Jan. 27 (Bloomberg) -- Credit traders have taken out the
most protection on China’s debt in 14 months just as the world’s
second-biggest economy faces a default test in its $1.7 trillion
market for trust products.
The net notional amount of credit-default swaps outstanding
on Chinese sovereign bonds totaled $9.125 billion on Jan. 17,
the most since November 2012, according to weekly figures
published by Depository Trust & Clearing Corp. December’s 12
percent jump to $9.066 billion was the biggest monthly gain
since October 2011, the figures indicate. The cost of the
contracts surged 25 basis points since Dec. 31, poised for the
largest monthly increase since a record cash crunch in June.
Credit risk is mounting amid speculation a 3 billion-yuan
($496 million) trust product distributed by the nation’s biggest
lender will fail to repay holders this week. Borrowing costs for
debtors are also climbing as the government eases interest-rate
controls. Local-government financing vehicles set coupons of
more than 9 percent in two debt sales last week, levels not seen
since at least 2012, according to Nomura Holdings Inc.
“Any news related to China can have sentiment impact on
global risk assets and this is really the issue in the short
term,” Damien Buchet, head of emerging-market fixed income in
Paris at AXA Investment Managers, said by phone on Jan. 23.
“This is the reason why some people are buying China CDS.” AXA
manages 550 billion euros ($750 billion) globally.
Costlier Protection
Five-year credit-default swaps protecting against a default
on Chinese government debt reached 105 basis points on Jan. 24
in New York, the most since Aug. 30, according to CMA prices.
The cost is little changed today and set to climb for a second
month, after almost halving to 65 from 121 in the August-
November period.
The yield on the 4.08 percent note due August 2023 fell one
basis point to 4.49 percent as of 11:12 a.m. in Shanghai, from
yesterday when markets were open for an extra trading session
before the week-long Lunar New Year holiday begins on Jan. 31.
Ten-year bond yields surged 104 basis points in the second half
of last year, touching a record 4.72 percent in November,
ChinaBond data show.
Assets managed by China’s 67 trusts soared 60 percent to
$1.67 trillion in the 12 months ended September, according to
the China Trustee Association. The trust product maturing this
week, known as Credit Equals Gold No. 1, was set up to lend
money to a coal miner that subsequently failed.
Distributor Industrial & Commercial Bank of China Ltd., the
trust issuer and the Shanxi provincial government may bail out
investors, the Guangzhou-based Time-Weekly reported on Jan. 23.
Shanxi’s financial office denied it would pay a 50 percent share
of the debt, while ICBC Chairman Jiang Jianqing told CNBC in
Davos, Switzerland that the incident will be a lesson on risk
for investors.
S&P Warning
Standard & Poor’s expects the product to fail, according to
a Jan. 24 statement in Hong Kong, and said any bailout by ICBC
may trigger a review of its assessments of both the lender and
China’s banking industry. “Chinese banks are unlikely to bail
out high-yield wealth management products unless the banks
happen to be the originator of the products,” Senior Director
Qiang Liao wrote in the statement.
China’s 25.9 trillion yuan bond market is dominated by
state-backed issuers and has yet to have its first default. As
liabilities are rolled over or reorganized, a “debt snowball”
threatens to trigger a financial crisis, according to Haitong
Securities Co.
LGFV Debt
Liabilities at non-financial corporates may rise to more
than 150 percent of gross domestic product in 2014, Haitong,
China’s second-biggest brokerage, said this month. The amount
owed by local government financing vehicles surged 67 percent
from the end of 2010 to 17.9 trillion yuan as of June 30,
according to an official audit released this month. Everbright
Securities Co. estimates they will need to repay a record 299.5
billion yuan of bonds this year.
“If the market sees serious credit risks, local
governments’ financing channels will be closed,” Xu Gao, chief
economist at Everbright in Beijing, said in a Jan. 20 phone
interview. “The consequence is not what top leaders can accept
and would lead to a hard landing of the economy.”
S&P said it does not expect local-government bonds to
default in 2014.
“Amid perceptions of growing financial risks in the
country, the central government appears to be wary of
destabilizing sentiment through major disruptions, such as a
default,” Kim Eng Tan, an S&P credit analyst in Singapore, said
in a Jan. 24 statement. “However, China’s creditworthiness
could deteriorate if indebtedness continues to grow rapidly,
including from local and regional governments.”
Strained Finances
More than 50 percent of the LGFVs do not generate enough
cash to pay the interest on their debt and so rely on new
borrowing and government subsidies to finance operations, Nomura
estimated in September, adding that a 100 basis point increase
in borrowing costs would boost the ratio by 10 percent.
“We continue to expect defaults to occur in the corporate,
LGFV, and the shadow banking sectors in 2014,” Zhang Zhiwei, a
Hong Kong-based economist at Nomura, wrote in a Jan. 22 report.
Citic Securities Co., China’s largest brokerage said losses
on the Credit Equals Gold No. 1 trust product would have limited
impact on China’s financial markets.
“It’s not like a default on the bond market,” Yang Feng,
a Beijing-based bond analyst at Citic, said in a Jan. 20 phone
interview. “I still don’t believe there will be any defaults on
the bond market this year. The cost would be too high for local
governments.”
- Joined
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people already knew 2 years ago it's gonna default becoz the company involved already closed down 2 years ago liao....
wouldn't be surprised if stocks go up........the bankers always do this to screw retail investors........
wouldn't be surprised if stocks go up........the bankers always do this to screw retail investors........
- Joined
- Jan 18, 2010
- Messages
- 7,177
- Points
- 48
Please crash...please crash...Please crash...please crash...Please crash...please crash...Please crash...please crash...Please crash...please crash...Please crash...please crash...Please crash...please crash...Please crash...please crash...Please crash...please crash...Please crash...please crash...Please crash...please crash...Please crash...please crash...Please crash...please crash...Please crash...please crash...Please crash...please crash...amen.
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