Red lights are flashing in Asian credit markets, where concern is mounting that a selloff in one of China’s largest bad-debt managers will spread to other heavily leveraged borrowers.
The Markit iTraxx Asia ex-Japan credit-default swap index of investment-grade bonds widened about 2 basis points, after recent reports of a looming restructuring at bad-debt manager China Huarong Asset Management Co., traders said. The gauge is set for a seventh day of increases, the longest streak since December 2018, and is at its highest since October last year, according to data from CMA.
The concerns about Huarong that are shaking the wider Asian debt market started after the firm joined dozens of Hong Kong-listed companies in failing to publish its 2020 earnings by a March 31 deadline. Caixin attributed the delay to plans for a significant financial restructuring.
That’s been pushing up broader measures of financing costs as well. Asian investment-grade dollar note spreads widened about 2-3 basis points more on Tuesday, traders said. They are also set for a seventh-straight day of expansion, the longest streak in more than five months, and are at the highest in more than two months, according to a Bloomberg Barclays index. Chinese property company bond prices also tumbled.
“Due to perceptions of Huarong as a systemically important entity and bonds being widely held, concerns over its near-term liquidity are having a spillover impact on spreads,” said Ek Pon Tay, a senior portfolio manager for emerging market debt at BNP Paribas Asset Management. Regulators may eventually need to shore up market confidence, he said.