China’s central bank is looking to improve the liquidity of its bond markets by encouraging commercial lenders to buy corporate bonds with lower ratings, sources told Caixin.
The People’s Bank of China will issue new medium-term lending facility (MLF) loans to commercial banks to buy nonfinancial corporate bonds in July, the sources said. The value of the MLF loans will be double the amount banks currently invest in bonds with a rating below AA+, indicating the central bank’s desire to channel liquidity to this bond class.
The move comes amid rising corporate bond defaults that have tested the resilience of China’s markets, as the country continues to battle its mountain of debt without triggering any sudden economic downturns. In the first five months of the year, 13 Chinese companies defaulted on 20 corporate bonds totalling Rmb 14.2 billion ($2.11 billion), over half the total for the whole of 2017, reports Caixin.