IGM Credit, IGM FX and Rates
23 Nov 2020
While COVID remains well under control in mainland China, we have seen a surge in credit defaults there since the beginning of Q4. So far this quarter, we have seen four major bond defaults in China:
1. Huachen Auto Group,
2. Yongcheng Coal & Electricity Group,
3. Tsinghua Unigroup,
4. Fujian Fusheng Group.
With credit quality in selected sectors worsening, interbank liquidity is going tighter regardless of less supply of government bonds in this quarter (chart 1) than the previous one. In interbank market, 1-month and 3-month repo are back at 3.00% and 3.20% respectively, the upper-end of their trading ranges since the middle of 2019 (chart 2). That means regardless of the counter-pandemic monetary easing across the globe since some 9 months ago, financing costs in mainland China, as represented by interbank repo rates, some how are back at their pre-pandemic levels.