Share

China’s debt default risk climbs

Shanghai - The cost of insuring Chinese sovereign debt against default climbed to the highest level since a record cash crunch in June 2013 as a slowing economy erodes confidence in the nation’s assets.

Credit-default swaps protecting government bonds against non-payment for five years rose for a fourth day on Wednesday to 140 basis points, according to prices from data provider CMA. The contracts increased 19 basis points in January, the biggest jump in 16 months. Government notes are falling for a third week.

The world’s second-largest economy grew 6.9% in 2015, the slowest pace in a quarter century, and expansion will ease to 6.5% this year, according to a Bloomberg survey of economists.

In a sign of worsening outflows, the People’s Bank of China sold a record amount of foreign currency in December, more than twice as much as in any previous month. It also gave guidance to some Chinese lenders in Hong Kong to suspend offshore yuan lending to curb short selling.

“The increase in the CDS is an expression of the sovereign risk outlook,” said Ben Sy, head of fixed income, currencies and commodities at the private banking arm of JPMorgan in Hong Kong. “China’s slowdown has a lot of impact on global markets, so even global funds need to hedge a hard-landing case in China, and if you want to express a macro view, CDS is still one of the cheapest ways to hedge it.”

The seven-day repurchase rate, a benchmark gauge of interbank liquidity, rose five basis points to 2.46% in Shanghai, according to a weighted average from the National Interbank Funding Center. It had climbed to double digits in June 2013 amid a cash crunch engineered by the central bank.

The PBOC injected 80 billion yuan ($12.2bn) to the banking system using 14-day reverse-repurchase agreements on Thursday, while adding another 70 billion yuan via 28-day contracts. The central bank will conduct open-market operations daily between January 29 and February 19, apart from during the week- long Lunar New Year holiday that begins February 7. The usual auction windows are on Tuesday and Thursday.

The yield on the benchmark 10-year notes has risen five basis points this week to 2.89%, ChinaBond data show.

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.94
-0.9%
Rand - Pound
24.10
-0.9%
Rand - Euro
20.59
-0.7%
Rand - Aus dollar
12.42
-0.9%
Rand - Yen
0.13
-0.8%
Platinum
915.75
-0.8%
Palladium
1,028.36
-3.5%
Gold
2,159.96
+0.2%
Silver
25.03
-0.6%
Brent Crude
85.34
-0.1%
Top 40
66,252
0.0%
All Share
72,431
0.0%
Resource 10
53,317
0.0%
Industrial 25
100,473
0.0%
Financial 15
16,622
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders