SHANGHAI/HONG KONG: When the Shanghai-traded bonds of conglomerate China Minsheng Investment Group plunged 40 percent over two days in January after news it had missed a repayment, Beijing-based hedge fund manager Jash Zhang smelled blood.As the private investors in the bond rushed to sell, Zhang snapped up CMIG's dumped bonds at about 50 yuan (US$7.48) apiece, or half their face value, betting that the 300-billion-yuan company would eventually repay the debt.The strategy，she said, is simply to pounce when faint-hearted investors are wavering."When bad news breaks about an issuer, some funds will scramble to sell the bonds," said Liu Xiaofang, head of investment research at Shanghai Fengshi Asset Management Ltd, which launched its first vulture fund in September. But the bonds' underlying problem might be "not that big," creating opportunities.Zhang and Liu are among a new flock of vulture investors that have emerged in China's corporate bond market in the last year, seeking to … [Read more...] about China’s fledgling junk bond market spawns new breed of vulture funds
Junk bond market
By Matt Wirz The Wall Street Journal Wed., Nov. 7, 2018 Hedge funds that specialize in junk debt are revving up the long-dormant Wall Street securitization machine, issuing billions of dollars in junk-bond collateralized debt obligations, or CDOs, this year. What are these complex securities and are more deals in the pipeline? Here are the details: 1. What is a CDO? CDO managers issue bonds and equity to outside investors and use the proceeds—as well as equity they themselves contribute—to buy a portfolio of junk-rated corporate debt. The CDO collects payments from the debt it buys, then uses the money to pay off its own bonds. Leftover cash goes to the equity holders. Unlike collateralized loan obligations, which mostly buy secured loans, CDO managers can toggle between loans and unsecured bonds depending on where they see more value. Buyers of CDO equity look to boost returns by using borrowed money to invest in junk debt. Similar financial engineering … [Read more...] about Five things to know about junk-bond CDOs
By Matt Wirz The Wall Street Journal Cezary Podkul Wed., Nov. 7, 2018 Wall Street financiers are reviving a complex transaction seldom seen since the financial crisis: collateralized debt obligations. Issuance of corporate debt CDOs has tripled this year to at least $3.8 billion (U.S.), according to data from LCD, S&P Global Market Intelligence. While still a small market, the increase shows investors are embracing complexity in pursuit of returns by reviving a type of financial engineering largely dormant since the crisis. Hedge funds like Fortress Investment Group LLC, Anchorage Capital Group LLC and Brigade Capital Management LP are issuing the CDOs to generate annual returns exceeding 20%, people familiar with the investments said. These latest CDOs are part of a small but fast-growing corner of the securitization market, which helped fuel the market meltdown of 2007-09 with similar instruments backed by mortgages. Investment banks are competing to … [Read more...] about Hedge funds revive the junk bond CDO
LONDON: Once the outcast of European bond markets, Greece appears firmly on the road to redemption.After years of austerity, the expiry of an 86 billion euro (US$100 billion) bailout in August will mark the end of an era in which Greece defaulted, 10-year yields topped 40 percent and the country came perilously close to being kicked out of the euro.Now, as Greece follows fellow financial crisis victims Ireland, Spain, Portugal and Cyprus back into the fold, it needs to lure long-term investors into its bond market so the country can fund itself independently once the bailout cash runs out.That could happen with a new bond issue to tap into positive sentiment around the end of the country's third bailout, inclusion in European Central Bank bond purchases or further credit upgrades for its debt which is still rated junk."The sun is shining on Greece. It is in a radically different place and ratings agencies are very likely to continue to upgrade the country," said Nick Gartside, … [Read more...] about Greece prepares to fly solo on bond markets
By Shen Hong The Wall Street Journal Tues., June 12, 2018 SHANGHAI—Beijing’s determination to tame China’s soaring debt levels has won plaudits from bullish observers who believe the government is finally tackling its key economic problem. Why, then, has there been so little stress in the country’s bond market? Defaults on Chinese bonds might appear to have risen sharply this year, in volume terms. A total of 13 issuers have defaulted on a combined 20.2 billion yuan ($3.1 billion U.S.) worth of corporate bonds in China’s domestic market in 2018, up 41 per cent from the same period last year, when 11 issuers had defaulted. Yet default levels remain trivial at just 0.08 per cent of the total $4 trillion of corporate bonds outstanding in China. Absent a major financial crisis, the corporate-debt default rate is typically around 2 per cent globally, according to Ivan Chung, a Hong Kong-based analyst at Moody’s Investors Service. The … [Read more...] about China’s bond-market mystery: Why aren’t there more defaults?