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Weekly Commentary: Controllable

Weekly Commentary: Controllable

Now that was wild. Let’s start with the Chinese developers. Indicative of the more troubled companies, Kaisa Group bond yields surged to almost 51% in Wednesday trading, up from 36% to begin the week (20% to start the month). Yields closed the week at 44.7%. After beginning the week at 23.3% (October at 16.6%), Yuzhou Group bond yields surged to almost 38% in Thursday trading, before reversing sharply lower to end Friday’s session at 27.7%. China Aoyuan yields began the week at 16.6%, jumped to almost 20% on Thursday, but were back down to 17% by week’s end. Evergrande yields ended the week at 75%. Acute instability for bonds of a sector that, according to Nomura analysts, has accumulated a frightening $5 TN of debt.

An index of Chinese dollar developer bonds began the week with yields of 17.5%, up from 14.4% to begin the month and 10% back in July. Yields closed Thursday trading at a record 20%, before ending the week at 19.3%.

Ample volatility as well in the cost of insuring against default for the major Chinese banks. China Development Bank CDS surged 10 Monday to 77 bps, up from 43 bps points at the beginning of September to the highest level since the pandemic crisis. China Development Bank CDS then reversed sharply lower, ending the week down at 62 bps. Industrial and Commercial Bank of China CDS traded to 78 bps (high since April ’20), up from 48 on September 17, before closing out the week at 76 bps. China Construction Bank traded to a post-pandemic high 75 bps (ended week at 74), after beginning the year at 36 bps.

It’s been a wild ride for China’s sovereign CDS. After beginning October at 47, China CDS closed last week (10/8) at 52.5 bps.

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