The end of the first quarter of 2018 provided the ideal backdrop for a debate on the future of Asia’s credit markets. After a bumper year for Asian bonds in 2017, followed by the busiest January for international issuance on record, rising US Treasury yields and renewed diplomatic tensions have injected a note of uncertainty.
IFR ASIA: Welcome everyone. Michael, perhaps you can kick us off with your sense of what’s changed since we sat down 12 months ago. What’s different this time around?
DESMOND HOW, GAOTENG: This is also why domestic CNY bonds are regarded more as a rates product than a credit product, as Paul mentioned. A big part of it is because credit differentiation is very low. Everything that is not Triple A will be high Double A. It doesn’t make a lot of sense to foreign investors. And the default rate, traditionally, has been low. There was a small spike last year, but even then, we’re talking about less than 1%. And if you look at this year’s onshore debt that’s maturing, one house alluded this figure of CNY5 trillion, or CNY3 trillion without puts. It’s a huge amount to refinance, and right now the onshore market is not conducive. Over the past two years, the NDRC (National Development and Reform Commission) has played a very big part in deciding how much a company can issue onshore or abroad.