stand easy or easier at least 10 basis
points might not be the biggest one-day
change ever for borrowing costs in
China's vast 7 trillion bond markets but
it was enough on Monday to push the
country's closely-watched onshore repo
rate back from Friday's eight-month high
that gives investors a little breathing
space to consider what next for the
rising tensions in onshore bond markets
one thing they should consider is that
own leverage as well as their fears for
companies bond yields in China have been
rising rapidly this month China's vie v8
government bond yield has risen 25 basis
points of 2.75 percent its worst monthly
performance in a year defaults by two
state-owned groups have also raised
fears that others will also follow suit
all this has added roughly half a
percentage point this month alone for
high-quality corporate borrowers and
spooked by this companies are so far
suspended plans for an estimated ten
billion in expected bond issuance a
middle the Ferrari about the pain of
rising rates once so far overlooked
factor is an investor's as well as
companies appear precariously balanced
the market for pledged style repose
which are short-term bond backed loans
is currently bigger than the actual
stock of outstanding debt sharp
worsening in market sentiment could
force those borrowers into fire sales if
their loans are called or cannot even
just be rolled over and the bond fund
inflows that followed last summer's
stock market router also at risk of
reversing since china's bond markets are
not quite as liquid as their size might
suggest fund managers facing redemptions
could be forced to dump what they can
rather than what they should or would
like to sell this potential from market
rout makes the seven-day repo rate more
important than ever long considered a
gauge of official views on the health of
the bond market the rate reached two
point five five percent on friday before
dropping to 2.4 five percent on monday
so long as the pbsc the People's Bank of
China injects enough money to keep the
rate roughly in this range between 2.25
and 2.5% the worst sell-off
should be kept at bay but if it moves
and stays sharply higher leverage
investors will be in for a shock and
given the impact that any Chinese
terminal now seems to have a world
markets that means investors elsewhere
too