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Q1 issuance surge weighs on credits

(ATF) A week of coupon payments continued to weigh on Chinese credit markets, with gains on the ATF benchmark index limited by a precipitous drop among the notes of state-run companies.

First-quarter issuance payments from previous years have come due this week, with more scheduled next week. Bonds tend to decline after coupon obligations are met because that reduces the pool of interest the debt will pay out before maturity.

Issuers front-load their funding plans at the start of the financial year and this week was expected to see about 241 billion yuan ($37 billion) worth of bonds sold, according to a Reuters tally of issuance filings, compared with a total of 60 billion yuan for the month of February.

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New issuance also tends to lower outstanding bond prices as investors switch into longer-dated credits.

The benchmark ATF China Bond 50 Index of AAA rated credits climbed 0.02% to 106.69 on Friday. The measure has fallen 0.13% this week, with losses accentuated by rising concern that inflation will return when the end of the pandemic unleashes an anticipated wave of consumer spending.  

The Enterprise sub-index of state-owned enterprises (SOEs) plummeted 0.60%, the steepest decline in data going back to 2016. Hangzhou Qianjiang New City Investment Group made a coupon payment on its 5.64% bond due in March 2025.

The index is likely to suffer more losses next week and the week after as six more companies prepare to make coupon payments on their bonds.

Sentiment is also likely to be muted following calls from officials to slow the pace of local government issuance, following a year of record sales to help boost local economies after the pandemic downturn early last year.

The Local Government sub-index is the best performing of ATF’s five bond indexes, having risen to 117.65 since launch. That compares with the Corporates sub-index, which is trading at a loss.

Mark McCord

Mark McCord is a financial journalist with more than three decades experience writing and editing at global news wires including Bloomberg and AFP, as well as daily newspapers in Hong Kong, Sydney and Melbourne. He has covered some of the biggest breaking news events in recent years including the Enron scandal, the New York terrorist attacks and the Iraq War. He is based in the UK. You can tweet to Mark at @MarkMcC64371550.

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