Credit Risk May Expand in 2015; Beware of Stepping On A Mine

The Economic Observer warns that 2015 could be much worse than 2014 as land mines pepper the credit landscape.
"Every year there is credit risk, but every year there is no real breach of contract, but in 2015, the frequency of such events is likely to rise."
There were several major cases of debt market stick saves in 2014, such as when trust borrowers defaulted, but the trust company made good on the product. Even Chaori paid off its debts in full.
In the only one onshore default China has had, investors didn’t lose a cent. Shanghai Chaori Solar Energy Science & Technology Co, which failed to make a full coupon payment in March, repaid all the principal and interest for its 1bn yuan of bonds.
This is the 刚性兑付, which I haven't seen translated, but roughly translates as guaranteed payment. It refers to the financial industry's unwritten guarantee (and investors' expectation) to make payment no matter what. It may be delayed, but investors will eventually receive payment thanks to deeper pockets stepping in.

Eventually, the pockets don't go deep enough and 2015 may be that year. The "guaranteed payment" may slowly exit the market as entirely predictable "black swans" periodically erupt in the debt market.

EO: 信用风险或增大 2015年债市谨防“踩雷”

No comments:

Post a Comment