Macro Research How will Evergrande’s fallout affect the glo | FSMOne SG - Research Highlights

Macro Research

How will Evergrande’s fallout affect the global bond market?

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• Credit spreads and underlying fundamentals suggest that Evergande’s fallout is likely domestic, contained within China's high yield bond market. We currently see little risk of spillover to China investment-grade bonds given the absence of funding stress.

• Within China's high yield bond market, credit stress is largely contained within the property sector. Yields of property bonds have surged, reflecting mounting risk, while those of non-property bonds remain largely unaffected.

• We expect minimal spillover to global credit market given the limited exposure to China bonds. Additionally, most markets are not showing material signs of stress after the Evergrande fallout while spillover fears are gradually abating.

• Amongst major credit markets, Asian HY bonds are more at risk given the higher underlying exposure. However, at the moment, we are not overly concerned given the smaller direct exposure to Evergrande bonds and our expectation that risk will be contained within China's property sector.

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