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China Export-Import Bank cancels bond issue as yields soar

Date 29-Nov-2017
Subject China Export-Import Bank cancels bond issue as yields soar

China Export-Import Bank cancels bond issue as yields soar

SHANGHAI, Nov 23 (Reuters) - One of China's three policy banks said that it would postpone a bond issue originally planned for Thursday, a sign of the pressure some borrowers face as an official push to reduce financial risk saps China's bond market.

In a statement posted to the website of the China Central Depository & Clearing Co on Wednesday evening, the Export-Import Bank of China (EXIM) said without elaborating that it would postpone a planned issuance on Thursday of bonds worth no more than 10 billion yuan due to "some reasons".

The postponement comes as concerns over the impact of China's campaign to reduce financial risk have prompted selling in the bond and stock markets.

The risk-reduction drive has specifically targeted China's policy banks. Last week, the China Banking Regulatory Commission instituted new rules to strengthen supervision over EXIM and its counterparts, China Development Bank (CDB) and Agricultural Development Bank of China, and to prevent "systemic financial risks".

Policy bank bonds have suffered from heavy selling, with yields on 10-year bonds issued by CDB rising 60 basis points from the end of September through Wednesday.

The 10-year yield on EXIM bonds was 4.99 percent on Thursday, having risen more than 63 basis points since the end of September.

Traders said the yield on Chinese 10-year treasury bonds touched fresh three-year highs of 4.025 percent on Thursday.

Traders and analysts said that while it was not uncommon for policy banks to postpone bond issues, EXIM's decision reflects the current high cost of financing.

"The statement didn't give a reason, but it's probably linked to the rise in rates," said David Qu, markets economist at ANZ Bank in Shanghai. He said issuers may be looking forward to bank purchases of bonds pushing yields down in the first quarter of 2018.

But there may be more pressure ahead, following the release last week of new regulations governing the asset management industry.

While China's central bank won't fully implement the rules until the end of June 2019, the rules are likely to affect policy bank bonds - particularly 10-year CDB bonds, which are easily traded and used in some wealth management products to maintain liquidity.

These factors may continue to push policy bank yields higher even as government bonds find support in the market thanks to a "flight to quality", Nomura rates strategist Albert Leung wrote in a note.

"We expect the divergence of performance between different bond categories ... to become more prominent into 2018," he said, noting high policy bank yields and widening credit spreads.


Source:- Nasdaq.com

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