Yields on corporate bonds in China are increasing at the fastest pace in three years

Yields on corporate bonds in China are increasing at the fastest pace in three years with respect to government bonds, companies refer to increase sales of debt that limits government borrowing.

The premium investors demand to hold a 10-year AAA-rated companies rather than sovereign debt rose 34 basis points to 132 since 30 September, the highest since the third quarter of 2007. Bond issue in the China market, the second largest in Asia after Japan, rose 26 percent to 7.92 trillion yuan (1.2 billion dollars) in the first nine months of last year, according to Chinabond, the home country of central clearing.

"The main factor behind this is the potential supply," said Tan Weisi, who oversees about 400 million yuan as the head of Fortune SGAM Fund Management Co. 's fixed income arm in Shanghai, in an interview. Lenders were forced by regulators to set aside more cash in reserve, so that "if banks have extra money that will be more interested in buying Treasuries," said Tan.

corporate bond market in China grew 45 percent in the 12 months to November, as regulators rein in bank lending to contain the fastest inflation in two years. Borrowing costs that are increasing in India, with the expansion of world class companies increased 28 basis points, or 0.28 percentage point this month to 102.

China new bank loans have fallen for two consecutive months, to 564 million yuan in late November of 596 million yuan in September, according to government data. Bank of Beijing Co. sold 6.5 billion yuan in 15-year bonds with a coupon of 5 percent on Dec. 22, according to a statement posted on the website of the bonus clearing.

The risks of smoking

The country has moved to curb risk-taking by banks this year after last year's record $ 1.4 billion in new loans fueled concerns that were forming bubbles in real estate assets.

"In the next six months if there are restrictions on bank lending, then companies to issue bonds," said Wu Tianshu, a fixed-income analyst with Beijing-based Galaxy Securities Co. "But some high-quality companies, if rate remains high, with a high capital cost, it was decided not to sell the debt. "

The People's Bank of China raised interest rates for the first time since 2007 in October and ordered lenders to set aside more money to the reserves for the third time in five weeks on 10 December. credit curbs may push borrowers to seek funds elsewhere in the bond and stock markets, Tan said.

Default Swaps

perceptions of traders of credit-default swaps "of the fastest growing economy in the world deteriorated at the fastest pace among major emerging markets earlier this month, policy makers refer to hit the brakes on economic growth to curb inflation.

credit agreements to five years in exchange for the nation's bonds rose 17 basis points in November after falling in October and September. Fell 1 basis point to 68 hours, CMA prices show. The decrease in swaps of improved investor confidence and rising as it deteriorates.

The yuan has appreciated 2.2 percent against the dollar since a peg was loosened two years in June, and the non-deliverable show traders are betting on an increase of 2.1 percent next year. The currency strengthened 0.2 percent to 6.6461 per dollar yesterday in Shanghai, the China Foreign Exchange Trade System.

Regulator

The banking regulator, the China Banking Regulatory Commission has ordered commercial banks to manage credit risk "with utmost caution and rigor" on 16 December as part of efforts to identify and manage real estate lending.

Inflation expectations will push companies to seek loans with shorter maturities in 2011, Xu Xiaoqing, the head of fixed income research at Beijing-based China International Capital Corp., the country is the first Sino-foreign bank, wrote in a research note Dec. 20. Loans with longer maturities may fall by about one trillion yuan, Xu said.

If next year's investment in fixed assets continued this year to 20 percent increase, companies are facing a "credit deficit", according to Xu. As a result, the issuance of bonds in the medium to long term the next year could increase by 450 million yuan, he wrote.

Government Bonds

The government bond yield 3.28 percent in 2020 due in August remained unchanged at 3.84 percent yesterday, Interbank funding data center shown. The yield gap between corporate and government debt reached 134 basis points on December 20, the highest since March 9.

The yield on the Chinese government three years of 3.26 percent compared with the notes of three years of India's 7.6 percent, 7.1 percent in Russia and 12.67 percent in Brazil.

The repurchase rate seven days rose to its highest level in more than two years yesterday, rising 9 basis points to 4.17 percent, reflecting the reduced availability of cash.

interest rate swaps to a year, the fixed cost required to receive the floating rate of seven-day repurchase, rose 1 basis point to 3.07 percent yesterday. swaps in five years won a basis point to 3.78 percent. This rate is from this year low of 2.68 percent on Aug. 12.

High pressure

Extends over the government's benchmarks for top-level corporate bonds could reach 150 basis points next year, said Wang Jianhui, an analyst with Southwest Securities Co. The spread for lower-rated companies grow "even more" said.

"The pressure of direct funding next year will be very large and it takes a lot of money," he said. "It will be a tighter monetary environment next year, and under these conditions the pressure on financing in the stock market will undoubtedly have an effect on the bond market."

The issuance of corporate bonds and medium-low score will increase 20 percent in 2011 from 2010, according to Guo Qinmiao, an analyst with Beijing-based Citic Securities Co., China's biggest brokerage by market value .

The premium investors demand to hold 10-year AA-rated corporate bonds rose to 231 basis points from a low of 178 basis points on November 5. Of the bonds a rating of AA-the spread has risen to 294 basis points from a low of 243 basis points on November 5.

The measures announced in July and November by the National Development and Reform Commission regulation to encourage more than 8,000 companies linked to local authorities show the country is encouraging the funding of infrastructure bonds instead of loans, according to CICC.