China Credit Markets Tumble Most In 3 Months As Default Spooks Lenders, Deals Pulled

Tyler Durden's picture

UPDATE: It's happened - China has suffered its first domestic corporate bond default as Chaori fails to meet interest payments on schedule and rather more surprisingly failed to receive a last-minute mysterious or otherwise bailout...


But hey don't sweat it, Moody's think it's great news...


Maybe tell the issuers that couldn't get their deals off today!!!

Of course what they mean is - maybe the market will finally start pricing in some real risk...

"Over the past few years, municipal governments and banks in China have stepped in to help distressed companies meet their bond payment obligations. These bailouts have led some investors to overlook the fundamental credit risks in bonds," says Ivan Chung, a Moody's Vice President and Senior Credit Officer.




"A default would likely make investors recalibrate their risk-return consideration for onshore bonds. Credit risk would play a more important role in pricing, thereby making the bond market more efficient in the allocation of capital," adds Chung.


Chinese stocks are not happy


Wondering who's next? We explained here...


and there are a lot to come...


As Bank of America reports in an analysis by David Cui, the Trust defaults are about to get hot and heavy. To wit:

We believe that during April to July the market may see many trust products threatening to default, especially those related to coal mines. By our estimate, the first real default most likely could happen in May with a Sichuan lead/zinc trust product worth Rmb140mn. This is because the product is relatively small (so the government may use it as a test case), the underlying asset is not attractive (so little chance of 3rd parties taking it over) and we also have heard very little on parties involved trying to work things out. Whether this will trigger an avalanche of future trust defaults remains to be seen and this presents a key risk to the market in our opinion.

Ever since the specter of the first real domestic default on a Chinese corporate bond hovered over the markets, the Chinese credit markets have been leaking lower. The last 3 days have seen the biggest drop in Chinese credit markets in almost 4 months. That situation, wistfully occurring half way around the world while US equity markets press on to ever more exuberant (and ignorant) heights, meant at least 3 other Chinese firms pulled their bond issues today and, as Reuters reports, has "triggered widespread upheaval in the bond market." Banks are awash with liquidity (as indicated by low repo rates) but clearly unwilling to lend and external investors are now running scared.


The Chinese corporate bond market has suffered considerably in the last few days...

Even as repo rates have dropped (and CNY has strengthened) - repo rates at multi-month lows, CNY strengthening and stocks weak...


and SHIBOR at multi-month lows (suggesting plenty of liqudity at the banks but as we see below, a clear unwillingness to lend)...

And that has led to pulled issues...

Via Reuters,

The threat of China's first domestic bond default has prompted Suining Chuanzhong Economic Technology Development to delay a one billion yuan ($164 million) debt issue and two other companies have halted deals blaming market volatility.




The run-up in corporate debt since 2008, and overcapacity in sectors such as steel, coal and solar energy, have threatened the solvency of many borrowers.


Chuanzhong said late on Wednesday that the news that Chaori Solar was set to miss a coupon payment on Friday "triggered severe upheaval in the bond market", so it had delayed its bond deal.


Taizhou Kouan Shipbuilding postponed a 300 million yuan issue of short-term commercial paper, while Xining Special Steel cancelled a 470 million yuan offering of medium-term notes, the companies said.


The deals are relatively small, but the delays underline the risk that an unprecedented default will make it harder for other companies to access capital.




Yields on corporate and enterprise bonds pushed higher after Chaori Solar's announcement. Five-year AA rated notes rose 8 basis points to 7.77 percent, the biggest increase since November 15, ChinaBond data showed.


This situation is being exacerbated as the lending is being cut to the indistries with the most slack - with the result (as we warned about in the past) that commodity-based collateral for all the shadow loans is getting hammered (through no real demand) and crushing the credit system (through haircuts and forced deleveraging as collateral values collapse)...

This is very negative for the Chinese economy which now more than ever is reliant on credit as its growth-driver... and the China credit-crisis indicator remains flashing red (2Y Swap - 2Y Bond spread)...



Charts: Bloomberg

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HedgeAccordingly's picture

It is cool. this guy can build a fusion reactor in his solar powered shed -> 

Mister Kitty's picture

I've been hearing about a Chinese hard landing for years now.  It never seems to happen.  Bitches.

flacon's picture

I think the markets may get a nasty surprise tomorrow with NFP. 

Grande Tetons's picture

What surprise? If it is a huge miss or a huge beat the market will soar. Kinda makes me wanna puke but that seems to be the trend. 

Boris Alatovkrap's picture

What is "SHIBOR"...?! Is sound like scary discovery of Thai cocktail waitress is not really girl...

zhandax's picture

Borris, on bad days it is like scary discovery of Thai cocktail waitress is not really girl.  The rest of the time it is the current vyigrysh the Shanghai loan-sharks in Brioni suits charge.

joego1's picture

A female Boar, Like old Yeller.

angel_of_joy's picture

It' happened. 

That's the surprise ! Explanation:

Communist China got more capitalistic than the motherlode of capitalism, America.

Reality beats fiction once more...

Dr. Engali's picture

The only surprise there will be is if the jobs report isn't released nan- seconds before scheduled to the squid so their robots can get the jump on everybody.

Boris Alatovkrap's picture

Confucius is say, "Wai zu man izu si fyucha bai wachu hai fuliquenshi tsuleida"

prains's picture

i thought he said; "We bing bong pow yu nutties like speed bag until yu pay"

Boris Alatovkrap's picture

You are mean, "Yu ou mi mo ni, yu pei nao!"

disabledvet's picture

I think we have "information overload" doc.

"We now turn to the reality on the ground."
Hopefully...this is a brief interruption before we get back to our "regularly scheduled programming" but we shall see.

We just had the Olympics...good place to go back to "in spirit" right now, yes, yes? There has to be a place that carries that "spirit" right now...Vienna is about the only place i can think of that doesn't have anything but "overtones."

"stick history back in the bottle"...yes, yes? "Respect for both sword and shield"? We are all great powers...we all agree on "integrity" here. Now we just have to find it within ourselves to say that we are all "lacking it" at the moment and hopefully get a laugh and hit the "refresh button."

Gotta lot of work to do here.
"The money is already gone."
We need to put that aside right now in my view.

Groundhog Day's picture

nasty surprise....I highly doubt it.  This too shall pass or spun as good news.  1900 spx tomorrow

Groundhog Day's picture

This can only mean one thing...SPX ramp

janus's picture


you always crack me the're like the stephen wright of ZH.

just bend the knee, say the Lord's Prayer, and thank Him you didn't marry a california-girl...well, on second thought, i must concede, there are advantages.  chief among them: any california girl, no matter how fundamentally bitter, can, at various times, be lured back into the the girl she was before she became a mother -- but only for brief moments -- and then it's all back again to pestiferous soon as the intoxicants wear off, that is.

every second, every minute, every hour, every day, every week, every month, every year...and, God bless me, every decade...i'm at every mark more convinced that i am not only deserving of a mistress, it has become a matter of absolute necessity.  for the sake of my marriage, my children...and, God bless beloved america, i must find a way to afford the one(s) i have in mind, find & seduce her(them), and bribe my wife into accepting the whole arrangement.  it's become a matter of national security.

i have a plan; and i'm certain i can pull it off.


new game's picture

get help...self serving asshole...

acetinker's picture

Hate to tell you this, but janus is a modern day muse.  You, on the other hand, are a run of the mill fuck up.

TruthHunter's picture

" i am not only deserving of a mistress, ...  it's become a matter of national security."

Hire a "housekeeper" like Arnold.  


Just don't make babies  /<sarc off>

TheRideNeverEnds's picture

Landing in a pile of fiat cushions the fall noticeably it would seem.


That is what I don't understand about all this doom and gloom.  Since everyone can just "print" (read add more zeros into the computers) an infinite amount of money what is the big deal?  If anything happens just print more money.  Defaulting on debt?  print money. Not enough credit? print money.  deflation? print money.  inflation? print money. economic slowdown? print money. economy expanding too fast? print money.  printed too much money? print more money.  


you can't go wrong, I mean really, whats the worst that could happen? The numbers get too large?  Well in that case just invent new numbers or just put an exponent next to the ones you already have, either way problem solved.  

NoDebt's picture

"Defaulting on debt?  print money. Not enough credit? print money.  deflation? print money.  inflation? print money. economic slowdown? print money. economy expanding too fast? print money.  printed too much money? print more money."

Well, that is pretty much what they taught me in MacroEcon 201 in college.

Dubaibanker's picture

In Brazil, OGX defaulted, In India Kingfisher defaulted, In USA, Detroit and Stockton defaulted, Lehman too, ....hmmm...some of the largest bankruptcies have happened in USA itself.

Entire municipalties are defaulting in USA:

And this is with over USD 16trillion in debt and counting....

This map is cool...and I see US written all over it...

Shit happens....:)

Deutsche does a nice comparison of Asian Bond markets:’s+behind+recent+trends+in+Asian+corporate+bond+markets%3F.PDF

And then UBS, the biggest underwriter of debt since 2010 says that China wants a small default to reduce risks of a bigger default in the future. It makes senses just like China allowed yuan to depreciate the highest in the last 2 weeks.

In a state owned system, nothing is what it seems and nothing seems what it really is....

A good argument in the UBS/Bloomberg article:

Xie Ping, deputy general manager at China Investment Corp., the nation’s sovereign wealth fund, said Jan. 11 China’s local governments won’t default and the central government won’t allow them to go insolvent either, Hexun reported on its website.

While a default in shadow banking would help investors better price risk, it would hurt local funding units and property companies that rely on them for capital, according to Ping An Securities Co.

“A default in the trust product will facilitate the healthy development of the market,” said Ping An’s Shi. “If there is a default, the trust market may shrink and those small LGFVS and small property companies which rely on trust financings will be impacted.”

janus's picture


big-ups on that video.  its star is a real American Hero.



Ranger4564's picture

HedgeAccordingly... thanks for the link. Admirable individual, based on that documentary. I did not research further yet, so I don't know if his past is as glorious.

I am trying to be like he seems to be.

Dr. Engali's picture

How much do you want to bet the print an 8% growth rate the next reporting? Wong? There is nuffing wong here in China you silly wound eye American.

alien-IQ's picture

Oh yeah, this should be good for a new new new all time high.

chump666's picture

China invades the 'islands', market tanks, say it's not an invasion open to discussion etc, markets rally.  Threatens US with UST sells offs and cutting investments o/s, Obama spins around on the spot, the EU sucks it's ass.  Japan's balls are tied or if you like "Japan's balls are tired"


disabledvet's picture

"we are all one happy train wreck" and we go from there.
someone tell a joke here...and it better be good.

CrimsonAvenger's picture

Since you asked...

A guy goes to the doctor's office; he's got a duck sitting on his head. The doctor says, "Can I help you?" The duck says, "Yeah, get this guy off my ass."

fonzannoon's picture

I gave you a greenie because i have never, ever, seen a sentence end with "japan's balls are tired".

I can promise you that I will be using that when i speak to someone tomorrow and I thank you in advance.

chump666's picture

hahahahahahahahahahahaha thanks Fonz!  One of the few ZH'ers with a sense of humor (yes I am "tired" too!). 

Should I correct it, or leave it?

fonzannoon's picture

It's just tremendous. It reminds me of a time me and a buddy were out at a bar and some chick arrogantly shot down my friend and he was hammered and pissed and called her an "easy titted bitch". It literally made no sense and yet was perfect. 

I can almost see the bloomberg interview with Kyle Bass when they ask him what finally took down the JGB market and he says "Japan's balls were tired"

chump666's picture

"easy titted bitch"   F*ck yes...that's funny.  I agree the Japan's balls are tired stands now, perfect.  He (Bass) quotes that, I want my cut!

Its Only Rock N Roll's picture

I have felt like the "easy titted bitch" way too much yes my balls are tired too.


skwid vacuous's picture

that's also what Lloyd and Jamie call Yellen, behind closed doors of course

LetThemEatRand's picture

Holy shit!  Worst in 3 months????????????!!!!!!!!!!!!!!!!!!

chump666's picture

HFTs have the AUD covered.  Should be sub 89 on China falling to bits

thestarl's picture

Welcome to the new normal

bowel collapse's picture

A girl on her hands and knees with fluid oozing out of every orifice

What do you notice when you walk into the room……….


The floor is level….totally detached


williambanzai7's picture

Thanks to Ben and his Keynesian posse, the whole world seems to think there is so such thing as insolvency risk.

The Shootist's picture

So, back to the happiness in slavery meme. Nothing to see here.

object_orient's picture

Higher bond yields make more money for investments.

That's good!

Higher bond yields mean there is more risk in the underlying debt.

That's bad!

Chinese corporate bonds now come with a free frozen yogurt, which I call Frogurt.

That's good!

The frozen yogurt contains potassium benzoate.


janus's picture

finally! something more alarming than kiev.

thank you, TD...i was just getting ready to exhale...i nearly relaxed for a second.

yeah, china's debt market has a decade's long overdue catch-down relative to equities a'commin. 

i wonder if this has anything to do with canada's passport thingy?  i wonder also how this relates to that mysterious derivatives implode?  i ponder further what import this has on the tiered status of various chinese corporate bond ratings? 

i don't think this looks good for a domiciled yuan.  but, on the upside (and only in the very near-term), it looks great for real estate in hong kong, beijing and shang hai. 

is this the first bash of the the long-awaited gong-show?

hello, indonesia...the new (and improved) china.  we americans have wearied of all that smog; and besides, i hear bali is awesome every season of the year.

confucius janus say: the dorrars are arways greener where the cheaper rabor rives.  (that's the mandarin version)

knock ya out!,




fijisailor's picture

If you convert those Yuan to dollars on the bar chart it all comes out to what?  $20 billion total?  Seems like a relatively small amount to me but then again there's the loss of confidence and the potential for a panic that could spread like wildfire.