This week’s Chart Room shows how ample liquidity is helping China’s onshore bond markets navigate around global volatility.
The People’s Bank of China continues to ease monetary policy, and on 24 April it further reduced the interest rate on the targeted medium-term lending facility aimed at small and medium-sized businesses. This comes after two cuts to the Loan Prime Rate and one cut to the Required Reserve Ratio this year, all showing the authorities’ commitment to gradually ease credit conditions.
Lower onshore bond yields and higher bond issuance shows funding conditions onshore are improving, limiting near-term corporate default risk. In offshore dollar markets, China high yield credit spreads have compressed significantly from their March highs, but remain far wider than their long term average levels. For issuers and investors it’s an attractive risk-return profile, with credit spreads offering much greater compensation for bearing the risks associated with high yield investing compared with the US and European markets.
