China’s first corporate bond default is a symbolic moment in the country’s financial development, but analysts have downplayed suggestions it will herald a wave of further failures across the country.
On Friday, Chaori Solar became the first company in recent history to default on its bonds after it failed to make an interest payment. Some have expressed fears that the Chaori default could create a domino effect where investors quit the bond market altogether, sparking a liquidity squeeze or a credit crunch.
However, the domestic bond markets have so far treated the default as a non-event. Average yields on investment grade debt have fallen this year, while the spread between highly-rated and low-rated credit has been widening steadily for the past six months – an indication that investors had already begun re-pricing risk.