Debt-backed bond purchases in China spur specter of panic selloff

Borrowing using bonds as collateral jumped 13% in the third quarter in China to a record volume of RMB155.8 trillion (US$24.648 trillion), The Wall Street Journal reported, citing data provider Wind Info. Investors and analysts say much of the money from these “repos” – actually repurchase agreements in which institutional investors swap bonds for short-term cash from other institutions such as brokerage firms – is being used to buy bonds. Should bond prices fall, investors could be forced to sell bonds to meet loan repayment calls, spurring a vicious cycle akin to the one that sped the debt-fueled descent of mainland share prices during this year’s stock market rout.