The Chinese government wants to unilaterally raise corporate bond yields in a bid to attract more investors to the market. They believe current yields are too low, thus there should be a minimum floor for each maturity.
Bloomberg: New five-year notes in the interbank market — the biggest of China’s three corporate bond markets — must offer a minimum 4.2 per cent yield, according to minutes of an Aug. 7 meeting between the National Association of Financial Market Institutional Investors… That compares with 3.9 per cent for an Aug. 3 issue by China’s top-rated Aviation Industry Corp. and the 2.95 coupon rate in a June issue by Microsoft Corp., the world’s largest software maker.
Yields on new corporate bonds have dropped below those in the secondary market because of the “strong bargaining power of companies,” said Feng Guanghua, deputy secretary of the National Association of Financial Market Institutional Investors, which also attended the meeting.
One goal is to ween companies off of using bank loans, and increase corporate funding via bond issues. It’s often the case that in emerging markets, bank lending is the primary source of funding, and so this may be about building up the bond-market infrastructure. Still it’s an odd, and will undoubtedly lead to distortions.
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