Chinese Junk Bonds Hot Property For Foreign Investors
China's property developers have created a dominant stand securing U.S. dollar-rated junk bonds during the first trimester of 2019. According to CNBC, this means that China also has the inside scoop on many 'high-yield' bonds. BlackRock, Pimco, and UBS are some of the first investors that have come out and said that the Chinese bonds are most attractive as an investment this year.
Global investors have been grabbing whatever high-risk, Asian bonds that they can. China only happened to have a lot of those and are reaping the benefits from a lot of investors who are willing to invest in high-yield, high-risk properties. Being designated high-risk is understandable given that, last year, these bonds were the casualty of the ongoing riff between China and the US.
Junk bonds are 'non-investment grade' debt securities. These carry a high risk of default and comes with a higher interest rate as compensation. The usual credit ratings for bonds are in-between BB+ or lower, per Fitch and Standard and Poor's valuation. These are also known as high-yield bonds.
These high-yield bonds started returning sometime in February this year. Bloomberg reported that traders started looking into their portfolios for asset bonds as early as February after the Federal Reserve softened its stance on these bonds. Investors suddenly started looking for these bonds, and it translated into the books.
The Bloomberg Barclays U.S. Corporate High Yield Bond Index valued these bonds at a whopping 5.25 percent total return during that time. The largest CCC borrowing since September 2018 was observed, where Clear Channel Outdoor Holdings, Inc received a record number of orders that week-- totaling up to more than $5 billion, good enough for a $2.2 billion deal.
Robert Almeida, a global investment strategist associated with the Massachusetts Financial Services Co., said that it was a 'sentiment overshot' that started the high yield. Despite the prevailing notion that the run in these junk bonds won't last, a few investors were willing to step in and take the risk, even given the stacking odds.
So will the trend continue and will it aid China and Asia in the long run? It depends. Policy levers such as credit conditions, the prevailing price cap, and the relaxation of home purchase restrictions may affect the bonds and their allure to people looking to score a big profit. The recent months have been promising, however, as China's property market started to ease into the year.