A fertiliser producer in north China will default on bond payments on Thursday, the latest casualty of a slowing economy and rampant overcapacity in commodity sectors including basic chemicals.
Defaults have contributed to falling Chinese bond prices in recent weeks, as well as a widening of the spread between safe government bonds and low-rated corporate notes. Traders said that as the implicit guarantee gradually fades, investors were paying more attention to corporate fundamentals.
“Problems at Nailun were well known, so this is no surprise. But the overall trend is forcing the market to rethink their assumptions,” said a bond trader at a small bank in Shanghai.
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