YIELDS on some short-term Chinese bonds stayed high yesterday after spiking in the previous session after steelmaker Dongbei Special Steel Group Co. missed payment on short-term commercial paper, the latest casualty of the country’s prolonged industrial slowdown.

    Analysts said Tuesday’s jump reflected rising risks for low-rated debt from stressed industrial sectors such as steel and cement, which are facing tough competition and sluggish demand that has saddled them with enormous amounts of excess capacity.

    Yields on Dongbei’s bonds and some other AA-rated issues rose sharply Tuesday, although broad indices of market sentiment including the high-yield bond index compiled by China’s main bond clearinghouse were relatively steady.

    Prices for Dongbei’s 2016 debt fell by nearly two-thirds Tuesday as news of the missed payment spread, and remained near those lows yesterday.

    Bond yields of some other industrial firms also remained elevated yesterday after Tuesday’s selloff.

    Yields on Benxi Beiying Iron & Steel Group Co.’s AA-rated debt maturing in June spiked upwards by 20 basis points (bps) Tuesday and eased back by only three bps to 5.38 percent yesterday morning. It is owned by the provincial government of Liaoning.

    Analysts said one reason for the market reaction was the apparent lack of clear signs of a bailout for Dongbei from the local government or main underwriter China Development Bank.

    “The fact that it was the first locally administered State-owned firm to have defaulted despite the underwriter being a policy bank is having a psychological impact on the onshore bond market,” said Xie Dongming, China Analyst at OCBC Bank in Hong Kong.

    “We did not see any last minute rescue and points to reduced ability and willingness of the local government to intervene. This is like opening the Pandora’s box — nobody is safe, we can see more defaults coming.” (SD-Agencies)