Chinese sovereign bond yields drop to their lowest since 2009 amid demand slowdown and as property market crisis enters fifth year

China’s short-term bond yields — which move inversely to prices — have fallen to levels not seen since the global financial crisis in 2009 amid rising expectations of further rate cuts next year due to weak domestic demand, the Financial Times reports. Ten-year bond yields also fell by 0.03 percentage points to 1.74.

Driving these shifts is a combination of heightened demand for bonds and sluggish consumer activity. Domestic consumption growth has been underwhelming, with retail sales falling short of expectations and imports declining more than predicted last month, the Financial Times reports separately. The decline in yields also comes on the back of increased bond purchases from banks and ins. firms, one analyst told the FT.

The property crisis is also yet to let up: Developers in the country have defaulted on USD 130 bn bonds since the crisis began — including USD 15 bn in defaults this year alone, Bloomberg reports. Just this month, the banking regulator has asked insurers to report their financial exposure to China Vanke Co. to assess how much support China’s fourth-largest developer by sales needs to avoid default.

The Chinese government is pushing back: The People’s Bank of China last week gathered some banks that it says have engaged in “aggressive” trading of sovereign bonds to caution them against illegal trading and advise them to be more “prudent.” The People’s Bank of China also decided to hold its benchmark lending rates steady this month in line with the US Federal Reserve, though it plans to make further cuts next year as part of a shift towards more aggressive support and stimulus in a bid to stimulate the economy, which includes propping up the property market. Authorities have also been slashing purchasing costs and easing restrictions on developers, while also providing state guarantees for bond sales by more stable developers.

It could take a year or two before we see results: While measures have slowed the decline, one analyst estimated that it could take another year or two before the real estate sector bottoms out, with more defaults expected next year.

MARKETS THIS MORNING-

Asian markets are in the green, with Japan’s Nikkei up 1%, South Korea’s Kospi gaining 1.3%, and Hong Kong’s Hang Seng rising 0.7%, boosted by news of a potential merger of Honda, Nissan and Mitsubishi. Meanwhile, Wall Street is heading for a positive open ahead of a holiday-shortened trading week.

THE CLOSING BELL: TADAWUL-

The TASI fell 0.4% yesterday on turnover of SAR 4.1 bn. The index is down -1.0% YTD.

In the green: Svcp (+9.9%), SHL (+6.4%) and Taiba (+5.0%).

In the red: Riyadh Cables (-6.3%), Shaker (-5.2%) and Sulaiman AlHabib (-4.0%).

THE CLOSING BELL: NOMU-

The NomuC fell 0.65% yesterday on turnover of SAR 59.3 mn. The index is up 27.3% YTD.

In the green: Ioud (+11.9%), Al Rasheed (+8.3%) and Leaf (+6.9%).

In the red: KnowledgeNet (-8.5%), AlBabtain Food (-8.4%) and Azm (-8.4%)

CORPORATE ACTIONS-

#1- Sabic Agri-Nutrients to distribute SAR 1.4 bn in dividends: Fertilizers maker Sabic Agri-Nutrients is set to pay out SAR 1.4 bn in dividends on some 476 mn shares for its 2H 2024’s earnings, the company said in a Tadawul disclosure. The dividends will be distributed on 17 February, 2025.

#2- Al Baha Investment and Development Company’s shareholders approved a 26.5% reduction to the company’s capital, according to a Tadawul statement. Trading on the company’s shares was suspended yesterday and today, before resuming tomorrow with fluctuation limits based on a price of SAR 0.44 per share. The reduction is meant to cover SAR 78.7 mn in accumulated losses.

#3- SPPC looks to convert SAR 73.7 mn of debt to capital: The Saudi Printing and Packaging Company (SPPC) submitted a request to the Capital Market Authority to convert SAR 73.7 mn in debts owed to Alinma Bank into capital to the Capital Market Authority, the company said in a Tadawul disclosure. SPPC signed a two-part debt settlement agreement with Alinma Bank last month to settle SAR 178.1 mn in outstanding debts. Our friends at EFG Hermes KSA were tapped as financial advisor for the transaction.

#4- Amwaj International lines up SAR 6 mn in dividends: Electronics and home appliances player Amwaj International is set to pay out SAR 6 mn in dividends, at SAR 1 per share, after it secured shareholders’ approval in a general assembly meeting on Thursday, the company said in a Tadawul disclosure. The dividends, which will be paid on its 2023 earnings, are slated for distribution on Wednesday, 1 January 2025.

#5- Savola Group is eyeing more buyback of the SAR 1 bn sukuk it had issued in 2019, the firm said in a disclosure to Tadawul. The company said yesterday it plans to buy back an extra 8.1%, or SAR 81 mn, of the sukuk, after it bought back and canceled SAR 859 mn, taking its total buyback program to 94%, up from 85.9%.