Chinese investors are buying up the high-yielding dollar bonds of the country’s cash-strapped local governments, spurred on by a renewed belief in Beijing’s implicit guarantee of the debt and a hunt for returns.
The gains for bonds issued in international markets by local government financing vehicles — investment entities that raise debt to fund spending on infrastructure and other projects — reflect Chinese financial institutions’ demand for higher yields. These investors have faced a lack of attractive options in the country’s flagging onshore stock and property markets this year.
Despite selling pressure from international investors worried about defaults, demand from Chinese buyers has pushed the average yield on debt in the iBoxx China LGFV high-yield dollar bond index down about 1.5 percentage points over the past month to 9.3 per cent. Yields fall as bond prices rise.