A widening of spreads on dollar bonds issued by developers could signal the imminent bursting of China’s property bubble. These bonds have been the worst performing of all US-denominated, non-financial, Asian corporate debt, and are now at a 2.26 percent premium to US Treasuries. This is a clear sign that investors are demanding greater yields to lend to China property firms, as they expect borrowers will have a harder time meeting debt payments amid a government clampdown down on lending.
As a result, Goldman Sachs Group Inc. and Credit Suisse Group AG cut their profit estimates for Chinese real estate companies after a 12.8 percent jump in real estate prices in April from a year earlier spurred the state to increase regulation.
“New issues by Chinese developers will stall for the time being,” Vince Chan, the Hong Kong-based chief credit strategist with Amias Berman & Co. LLP, said in a phone interview. “Investors need handsome rewards for getting exposed to weaker fundamentals.”
Source: Bloomberg