(Bloomberg) -- Chinese firms sold the least amount of bonds domestically in the past two months since 2021, as they navigated rising borrowing costs and uncertainties tied to the government’s stimulus plans.
Issuers priced 2.51 trillion yuan ($352 billion) of bonds in September and October in the onshore market, down 8.4% from the same period last year, according to Bloomberg-compiled data. The figure was the lowest since the same two-month period three years ago.
The lackluster activity comes as companies assess a series of recent policy initiatives — including cuts to a short-term interest rate, banks’ reserve requirement and lending rates — that are designed to stimulate demand and jumpstart the economy. Authorities’ support also steered much of investors’ attention to the stock market in September and early October.
“The (China) fiscal stimulus plan is still going through procedures, and there is no evidence showing strong consensus has been reached among government departments,” Gary Ng, senior economist at Natixis SA, said.
With issuance flagging compared with more robust summer months, borrowing costs are rising. The average coupon for five-year corporate bonds rose nine basis points to nearly 2.8% in October from a month earlier, according to Bloomberg-compiled data. That’s the highest since May.
“The financing demand for issuers may not be very strong,” Ng said.
Uncertainties following the September stimulus announcements are similarly reflected in the secondary market. The average yield for five-year corporate yuan bonds with AAA ratings rose 25 basis points during the week ending Sept. 29, the largest weekly jump since July 2020, according to Bloomberg-compiled data.
China’s top legislative body plans to hold a highly anticipated session in Beijing next week, stirring expectations that more details on fiscal stimulus measures may be released. Finance Ministry officials have said fiscal moves will be large in scale.
“Under the current economic backdrop, the risk of certain credit bonds can be relatively high for investors,” Ng said.
--With assistance from Qingqi She.
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