This page has been archived and commenting is disabled.

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...

  • *CITIC BANK WON'T HELP CHAORI MAKE INTEREST PAYMENT: 21ST HERALD
  • *SHANGHAI CHAORI DEFAULTS ON BOND INTEREST PAYMENTS, WSJ SAYS

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

  • *MOODY'S: DEFAULT BY CHAORI SOLAR WOULD ADVANCE CHINA'S BOND MKT

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

 

- advertisements -

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Thu, 03/06/2014 - 22:54 | 4519879 HedgeAccordingly
HedgeAccordingly's picture

It is cool. this guy can build a fusion reactor in his solar powered shed -> http://hedge.ly/1g27tqV 

Thu, 03/06/2014 - 22:56 | 4519884 Mister Kitty
Mister Kitty's picture

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

Thu, 03/06/2014 - 23:05 | 4519910 Theta_Burn
Theta_Burn's picture

DC Fuser?

Thu, 03/06/2014 - 23:15 | 4519942 flacon
flacon's picture

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

Thu, 03/06/2014 - 23:20 | 4519953 Grande Tetons
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. 

Thu, 03/06/2014 - 23:36 | 4519994 Boris Alatovkrap
Boris Alatovkrap's picture

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

Thu, 03/06/2014 - 23:40 | 4520005 Grande Tetons
Grande Tetons's picture

SHEISHEWHORE

Fri, 03/07/2014 - 02:57 | 4520256 zhandax
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.

Fri, 03/07/2014 - 06:53 | 4520448 disabledvet
disabledvet's picture

SHAIZAMM!

Fri, 03/07/2014 - 07:38 | 4520488 negative rates
negative rates's picture

Rate rise bitches!

Fri, 03/07/2014 - 01:44 | 4520215 joego1
joego1's picture

A female Boar, Like old Yeller.

Fri, 03/07/2014 - 11:13 | 4521142 Boris Alatovkrap
Boris Alatovkrap's picture

Or Pant-Suit-Hillary?

Fri, 03/07/2014 - 01:27 | 4520195 angel_of_joy
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...

Thu, 03/06/2014 - 23:32 | 4519963 Dr. Engali
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.

Thu, 03/06/2014 - 23:40 | 4520007 Boris Alatovkrap
Boris Alatovkrap's picture

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

Fri, 03/07/2014 - 05:34 | 4520406 prains
prains's picture

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

Fri, 03/07/2014 - 11:11 | 4521138 Boris Alatovkrap
Boris Alatovkrap's picture

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

Thu, 03/06/2014 - 23:47 | 4520020 disabledvet
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.

Fri, 03/07/2014 - 01:09 | 4520171 Groundhog Day
Groundhog Day's picture

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

Thu, 03/06/2014 - 23:10 | 4519923 Groundhog Day
Groundhog Day's picture

This can only mean one thing...SPX ramp

Fri, 03/07/2014 - 03:41 | 4520306 janus
janus's picture

MisterKitty,

you always crack me the fuck-up...you'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 nonsense...as 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 me...my 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.  

  https://www.youtube.com/watch?v=FY0dEnneEXU

janus

Fri, 03/07/2014 - 09:00 | 4520572 new game
new game's picture

get help...self serving asshole...

Wed, 03/12/2014 - 22:20 | 4541450 acetinker
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.

Fri, 03/07/2014 - 09:29 | 4520653 TruthHunter
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>

Fri, 03/07/2014 - 04:53 | 4520375 TheRideNeverEnds
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.  

Fri, 03/07/2014 - 08:06 | 4520506 NoDebt
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.

Fri, 03/07/2014 - 10:26 | 4520420 Dubaibanker
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. http://www.instantshift.com/2010/02/03/22-largest-bankruptcies-in-world-...

Entire municipalties are defaulting in USA: http://www.marketwatch.com/story/5-biggest-municipal-bankruptcies-in-the...

And this is with over USD 16trillion in debt and counting....http://research.stlouisfed.org/fred2/series/GFDEBTN

This map is cool...and I see US written all over it...http://www.mapreport.com/subtopics/b/k.html

Shit happens....:)

Deutsche does a nice comparison of Asian Bond markets: 

http://www.dbresearch.com/PROD/DBR_INTERNET_EN-PROD/PROD0000000000328056/What’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: 

http://www.bloomberg.com/news/2014-01-24/ubs-says-market-wants-default-a...

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.”

Fri, 03/07/2014 - 03:19 | 4520280 janus
janus's picture

@hedgeaccordingly:

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

thanks,

janus

Fri, 03/07/2014 - 08:50 | 4520556 williambanzai7
williambanzai7's picture

Fri, 03/07/2014 - 09:03 | 4520580 Ranger4564
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.

Thu, 03/06/2014 - 23:02 | 4519899 Dr. Engali
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.

Thu, 03/06/2014 - 23:11 | 4519925 alien-IQ
alien-IQ's picture

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

Thu, 03/06/2014 - 23:33 | 4519966 chump666
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"

etc

Thu, 03/06/2014 - 23:51 | 4520034 disabledvet
disabledvet's picture

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

Fri, 03/07/2014 - 08:14 | 4520514 CrimsonAvenger
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."

Fri, 03/07/2014 - 08:31 | 4520529 ParkAveFlasher
ParkAveFlasher's picture

That's one smart duck!

Thu, 03/06/2014 - 23:29 | 4519974 fonzannoon
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.

Thu, 03/06/2014 - 23:32 | 4519981 chump666
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?

Thu, 03/06/2014 - 23:39 | 4520002 fonzannoon
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"

Thu, 03/06/2014 - 23:47 | 4520025 chump666
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!

Fri, 03/07/2014 - 00:08 | 4520073 Its Only Rock N Roll
Its Only Rock N Roll's picture

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

 

Fri, 03/07/2014 - 08:21 | 4520521 skwid vacuous
skwid vacuous's picture

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

Fri, 03/07/2014 - 00:02 | 4520060 LetThemEatRand
LetThemEatRand's picture

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

Fri, 03/07/2014 - 00:40 | 4520133 chump666
chump666's picture

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

Fri, 03/07/2014 - 10:10 | 4520886 thestarl
thestarl's picture

Welcome to the new normal

Fri, 03/07/2014 - 00:45 | 4520140 bowel collapse
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

 

Fri, 03/07/2014 - 01:24 | 4520193 williambanzai7
williambanzai7's picture

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

Fri, 03/07/2014 - 01:29 | 4520198 The Shootist
The Shootist's picture

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

Fri, 03/07/2014 - 02:49 | 4520257 object_orient
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.

...

Fri, 03/07/2014 - 02:57 | 4520260 janus
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?

https://www.youtube.com/watch?v=1tQyG7wS5-M

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)

https://www.youtube.com/watch?v=oHqUipinDyw

knock ya out!,

janus

 

 

Fri, 03/07/2014 - 03:02 | 4520261 fijisailor
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.

Fri, 03/07/2014 - 03:39 | 4520305 soopy
soopy's picture

Yawn.

Fri, 03/07/2014 - 08:22 | 4520333 Wait What
Wait What's picture

one day this whole global ponzi will come screeching to a halt as it collapses under the weight of its own insolvency. today is not that day. but at least we know 1 company on earth's 510M sq.km. missed a payment. not like some tsunami/fukushima event, just missed a payment. back in your coop, chicken little.

i'm going to go out on a limb and say the SPX closes at all time highs in the next 8 hrs... i feel so bold!!

Fri, 03/07/2014 - 04:04 | 4520338 q99x2
q99x2's picture

Don't worry. Because of Alex Jones the Chinese have to build an army to take over the United States of America. Iron will be needed.

Fri, 03/07/2014 - 05:11 | 4520394 hero HNL
hero HNL's picture

China Default on Japanese TV: Watch it. It's in Japanese but very interesting. Can never see such program on Western TV.

 

https://www.youtube.com/watch?v=p_6e8M9trB0

 

 

Fri, 03/07/2014 - 07:06 | 4520460 fijisailor
fijisailor's picture

When I lived in Asia I used to watch NHK in english.  It made western reporting look pathetic

Fri, 03/07/2014 - 05:41 | 4520413 Sufiy
Sufiy's picture

Eric Sprott on China and Gold:


Eric Sprott on Ukraine Russia War: Capital Controls, Bank Runs, Gold and Silver Forecast


  Eric Sprott discusses the Gold market manipulation and the set of evidence presented by a number of new reports on the subject. According to Eric, demand for Gold is exceeding available supply and it will power the Gold price much higher. China is buying record amounts of Gold and situation in Ukraine puts more strain on the global economy and its monetary system. Gold is the place you turn during the financial and political distress. http://sufiy.blogspot.co.uk/2014/03/eric-sprott-on-ukraine-russia-war.ht...


Koos Jansen: Chinese Physical Gold Demand YTD 369t Up 51 % Y/Y TNR.v MUX GDX GLD RGLD ABX

Fri, 03/07/2014 - 09:11 | 4520608 Ranger4564
Ranger4564's picture

I'm going to suggest the Chinese default was in punishment for having supported Putin the past few days, and to intimidate the Chinese with financial devastation. If the Chinese are smart, they will continue their hard work in dethroning the Oligarchs and restore some sanity to the world. After that, we can worry about bonds and defaults. Until the global intrigue is resolved, consider financial events as political attacks and allegiances.

Fri, 03/07/2014 - 11:07 | 4521111 NoTTD
NoTTD's picture

Who knows what this means or if this company even existed.   Chinese datas is the gold standard of bullshit.

Fri, 03/07/2014 - 22:06 | 4523792 TheCosmicTaco
TheCosmicTaco's picture

Anybody dumb enough to hold Chinese bonds is gonna be missing a lot more than just a coupon payment. You can kiss your principal goodbye, since the entire Chinese financial system right now is more or less the world's largest ever Ponzi scheme.

Copper-based letters of credit, Bankers' Acceptance Notes, whatever... there is a whole lot of funny money floating around in China, and when people start to find out that funny money can't be used to repay real debt then things start to get unfunny very, very rapidly.

China is getting closer to the unfunny stage every single day.

Do NOT follow this link or you will be banned from the site!