Bond gains pared as payments continue

by Mark Mccord in

PBoC signal of tighter lending lifts stocks and credits, but coupon season halts advance on ATF CB50 

(ATF) Chinese bonds broadly advanced Monday but the benchmark index was dragged down by the latest appetite-sapping coupon payments.

Returns on credits increased after a decision to hold household lending rates down suggested the central bank was leaning towards quantitative measures to manage monetary policy.

The benchmark ATF China Bond 50 Index of AAA rated credits fell 0.09%, extending losses this month to 0.34% as the coupon payment season intensified. 

Also on ATF

A payment on Export-Import Bank of China’s 4.11% bond due in March 2027 and also on China Merchant Bank’s 2.75% security maturing in March 2023 dragged the Financials sub-index 0.04% lower.

Bonds tend to decline after coupon obligations are met because they reduce the pool of interest the debt will pay out before maturity.

Of the other sub-indexes, Corporates climbed 0.04%, Enterprises rose 0.05% and Local Government advanced 0.03%.

Chinese credits have pulled back from a six-month rally on concern that pent-up demand will be unleashed after the pandemic and spur an inflationary spiral. 

The People’s Bank of China kept its benchmark lending rate for corporate and household loans unchanged for an 11th straight month. 

“This points to a preference for using quantitative controls to rein in lending rather than higher interest rates,” said Julian Evans-Pritchard, and Sheana Yue, of Capital Economics. Similar measures used in developed economies have resulted in surging prices on higher-risk securities.