- China maintains lending rates
- The Chinese economy grew 3.2% in Q2
- Property development recovery in China to benefit Asian bonds
China maintains benchmark lending rates
China maintained its steady benchmark lending rate on Monday for a third consecutive month in line with market expectations amid indications that the country’s economy is recovering. The 1-year loan prime rate (CNYLPR1Y=CFXS0 and 5-year loan prime rate (CNYLPR5Y-CFX) remained unchanged at .85% and 4.65%, respectively. Usually, new and unpaid loans are based on the LPR with the 5-year rate influencing mortgages pricing. Equally, one-year MLF loan interest rate to financial institutions remained unchanged at 2.95% for the third successive month. Small Chinese lenders are making up a huge proportion of the riskiest bank debt.
In the second quarter, the world’s second-largest economy grew by 3.2% compared to a year earlier topping analyst expectations of 2.5%. Among the sectors showing signs of recovery is the housing market, which, according to analysts, this offers bond investors more opportunities as developers begin to get back on their feet. In May, property sales by floor space increased 9.7% compared to a 2.1% drop in April. Between January and May, funds raised by property developers declined by 6.1% compared to the 10.4% decline in the first four months of this year.
Property recovery in China to benefit Asian high-yield bonds
UBS Asset Management’s Hayden Briscoe, who is the head of fixed income in the Asia Pacific region, indicated that the recovery will directly benefit Asian high-yield bonds. This is because the Asian high-yield bonds share of China is around 50%. According to Refinitiv data, the Chinese property developers are among the largest junk bond issuers in the Asian continent, and 2019 they issued $46.23 billion.
Last week Japanese bank Nomura also warned of a possible property bubble. The bank cited the increasing property price inflation in 70 cities in China, increasing 0.6% in June up from 0.5% the previous month. In May, home resale prices jumped 12% of the prior year, which is the second-highest gain in the 70 major cities.