Source: Wall Street Journal

Author: serena ng

After the Chinese government's epidemic prevention and control policy and the real estate industry policy have reversed, the Asian US dollar garbage bond market ushered in a rare and great rebound in history.Prior to this, the market has been in trouble for more than a year, and the breach of contract has appeared frequently.

As for when the market and whether it can return to the degree of financing that most garbage -level companies can make again, it is difficult to conclude.

Based on the total return rate, Asia's high -income bonds have increased by 18%in November; the total return rate includes bond prices increase and ticket interest payment.According to Ice Data Services, this is the best month in the market for more than a decade.The biggest catalyst is the recent decision of the Chinese government to support the downturn's real estate market by reducing the borrowing restrictions on real estate developers, and abandoning the strategy of dynamic clearance of the new crown epidemic in the Chinese economy.,

The credit analysis director of the Asia -Pacific self -operating trading department of Deutsche Bank, Owen Gallimore, to see the most sharp policy steering in the Chinese real estate industry.

At the end of October, the development price of a $ 1 billion bond in January 2024, which was expired in January 2024, was only 14%of the facial value. Generally, only securities with breach of contract would have this price.

According to FACTSET's wise data, the latest bond price is about 74%of the face value, which means that investors are now much optimistic and believe that bonds can be paid when they expire.

Country Garden is one of the largest residential sellers in China. It is difficult for investors to believe most of this year that the company can survive the real estate downturn. Country Garden's stocks listed in Hong Kong have fallen to a historical low earlier.

Since October 31, the company's stock price has risen three times that of the original, most of which have occurred in the relevant Chinese departments to take action to alleviate the pressure of developers, and domestic banks have stated that they will provide support for the company to support the company.after.In the past month, the company raised about $ 1.1 billion through sales to help repay the debt.

Gallimore said that before last month, many investors of many emerging market bonds have avoided Asian bonds. Because of their poor performance, the latest round of rebound was very strong, forcing them to make adjustments.After China Evergrande and many peer breach of contract, investors' views on China are extremely pessimistic. Now this pessimistic atmosphere has been replaced by caution and optimism, and people think that the junk bond market has finally bottomed out.

Within two months ago, the US dollar bonds developed by the smaller Chinese developer Xincheng fell to a very low level.Among them, the price of bonds expired next year recently soared to about 92%equivalent to the face value.

The bonds of Macau gaming operators have plummeted earlier, but because China's re -opening plan will make Macau rejuvenating vitality, the prices of these bonds have switched again.

The average price of bonds in the Asian high -income US dollar bond index prepared by the

ICE and the Bank of America has rebounded from the low point touched at the end of October, rising from about 57%of the face value to 74%.Bonds of default are eliminated from the index, so this price level reflects those bonds that perform well.

The risk premium of the benchmark index (that is, compared to the yield of U.S. Treasury bonds at the same time, the additional yield required by investors) touched the lowest level of more than a year last week.

There is still a way to go away from the real recovery.At the level of 10.2 percentage points, the spread of high -income bonds in Asia is about 6 percentage points compared to US high -income bonds.Before the outbreak, the yield of Asian garbage bonds was less than 2 percentage points higher than similar bonds in the United States.

The recent bond price rebound proves the judgment of some investors. They bet on the Chinese government institutions not to watch and let China's real estate market collapse because the real estate industry is very important for the Chinese economy.

Amy Kam, a senior fund manager who focuses on emerging market bonds, said that the company has held some bonds of strong developers since the real estate market has declined.Kam said that she was severely tested in October in October. At that time, the price of these bonds fell to a very low level after the mainland government ended the 20th National Congress of the CPIC.She said that many international investors had abandoned the sector at that time.

Kam said that when she met with colleagues at the end of October, she reiterated that she believed that she was optimistic about the bonds of China Real Estate Corporation, which could survive in this downturn.

Kam said that it is necessary to be firm at the same time, and she also said that she was glad to see the fact that her prediction was correct.On November 11, China's financial regulatory agencies released 16 measures to support the real estate market and help private and state -owned real estate developers obtain sufficient credit from banks to maintain operations.

After that, the Bank of China has provided developers with loans and other credit, and these companies have also obtained a large amount of RMB -denominated bonds in mainland China.The prices of their listed stocks in Hong Kong have soared, enabling private developers to raise funds through the sale of stocks in Hong Kong to help the repayment of international bonds.

The average price of high -income bonds in Asia is still much lower than the level of face value, which means that investors who buy bonds earlier were losing losses.According to data compiled by Barclays Group, since the beginning of 2021, the total return rate of the asset category is -28%.

Barclays Avanti Save, managing director responsible for the Asian credit strategy, said a huge gap needs to be filled.She said she expects bond prices to continue to rise.

Howe Chung Wan, the Asian fixed income director of Singapore's Principal Asset Management, said China has recently shifted to coexisting with coronal virus. This is a major change. Some domestic investors have begun to return to the US dollar bond market.

The average yield of Asian garbage bonds is recently 14%. For most companies, the cost of issuing new US dollar bonds is still too high.If you cannot reinstate financing for debt or find other sources of funds, some companies may eventually break or have to reorganize.But investors said that it was unlikely that bonds would fall.

Wan said that the market no longer pushes all bond prices to the level when it is breach of contract. The current price is in a region that is much healthier than before.