Bond Issuers Face Regulatory Storm

Recent regulatory actions in the bond market will make it far more difficult for corporate issuers to sell bonds, and will increase refinancing costs and default risks. The new measures target underwriters, ratings firms, accountants, and law firms, making them legally responsible for information disclosed within prospectus documents. Property developers have been the primary defaulters over the past two years, but the new regulatory changes will bring more local government financing vehicles (LGFVs) under pressure.

Posted January 14, 2021
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Friendly PBOC Cheers Money Markets, Even Without RRR Cut

Every year, China’s interbank market is tested by demand for cash ahead of the Chinese New Year holiday. However, this year should be smoother than most, because of the late holiday in mid-February, a friendlier PBOC, and slower government bond issuance. The central bank can likely manage pre-holiday cash demand with liquidity injections via open market operations (OMO) and the medium-term lending facility (MLF). Market expectations of an across-the-board cut to banks’ reserve requirements are probably too optimistic. On a longer horizon, the PBOC needs to cut deposit and funding rates further as managing debt will become a more pressing task than maintaining economic growth, especially in a deflationary environment.

Posted January 14, 2021
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Property Market Chartbook, December 2020

Property sales growth held up in November, as developers cut prices to recover cash under new limits on leverage growth. Land sales continued declining for the fifth consecutive month, and overall construction momentum slowed. Policy signals toward the sector remain restrictive, as local governments in seven cities rolled out new escrow requirements on developers to reduce the probability of half-finished buildings.

Posted December 18, 2020
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