Two Junk-Rated China Property Bonds Just Drew Billions of Dollars of Orders

(Bloomberg) -- Slowing economic growth may be spurring the rally in sovereign debt, but demand has also erupted in a risky corner of China’s credit market.

Two junk-rated Chinese property dollar bonds priced on Wednesday after receiving orders of more than $2 billion each for offerings of less than $500 million. Total orders for dollar bonds sold by Chinese property developers so far in March were 8.5 times their issue size, set to hit the highest in 18 months, according to data compiled by Bloomberg using available deal statistics.

Investors globally are piling into fixed income assets as central banks take a dovish stance amid slowing economic growth. The 10-year Treasury yield has slid to the lowest since December 2017 and rates on benchmark German bunds sank further below zero. In comparison, high-yield Chinese builder bonds still offer relatively attractive yields of 7.6 percent, according to a ICE BofAML index.

The relaxation of property curbs on the mainland has also boosted investor confidence in this heavily indebted sector, with AllianceBernstein, BNP Paribas Asset Management and Jupiter Asset Management expecting further bond gains. China property dollar bonds have already handed investors returns of 9 percent so far this year, according to an ICE BofAML index.

“This current rally in China property bonds might still have some legs as some investors who didn’t manage to participate in the tightening this year are trying to play catch-up,” said Yin Chin Cheong, analyst at the CreditSights Singapore LLC. There is still cash and new fund inflows waiting to be put to work while China’s onshore bid also returns with easing liquidity, she said.

Overall, demand for dollar-denominated bonds in Asia is also robust. Orders for such notes jumped to 8.1 times their issuance sizes this month from 6.7 times in February, the strongest since Bloomberg started compiling the data in 2016.

--With assistance from Shawn Qiu.

To contact the reporter on this story: Annie Lee in Hong Kong at olee42@bloomberg.net

To contact the editors responsible for this story: Neha D'silva at ndsilva1@bloomberg.net, Lianting Tu

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