Pimco Warns of Global Market Turbulence Amid China's Worsening Property Crisis

China's property crisis still key signal of appetite for junk bonds, PIMCO says

The crisis in China's property market remains a key driver of demand for junk bonds, according to Pacific Investment Management Company (PIMCO).

In a report released yesterday, PIMCO noted that the Chinese property market has been in a downturn since 2020, with prices falling by around 20 per cent. The crisis has led to a surge in defaults among property developers, which in turn has driven up demand for junk bonds.

"The property market is a key driver of the junk bond market in China," said Yichen Zhang, PIMCO's Asia-Pacific portfolio manager. "When the property market is doing well, property developers are able to tap the junk bond market easily. But when the market is not doing well, they are more likely to default, which drives up demand for junk bonds."

PIMCO noted that the yield on China's junk bond market has risen to around 10 per cent, compared to around 5 per cent in 2020. The yield is a measure of the return an investor can expect from holding a bond until it matures.

The report also noted that the Chinese government has been trying to address the crisis by cutting interest rates and relaxing rules on property purchases. However, PIMCO said that these measures have had limited impact, and that the property market remains a key source of risk for the junk bond market.

Overall, PIMCO said that the crisis in China's property market is a key factor in the country's junk bond market, and that investors should be cautious when investing in junk bonds in China.