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The local debt risk resolves the warmth
Urban investment debt sinking strategy may be at the right time
2023-02-20 Source: Shanghai Securities News
◎Reporter Zhang Xinran
Recently, the work of preventing and resolving local debt risks has become the focus of market attention.
Whether it is the excessive completion of the hidden debt resolution task disclosed in many places, or the statement from the policy to keep the bottom line of local debt risks, it has brought warmth to the urban investment bond market.
In this context, analysts said that under the background of “steady growth”, debt risks in most regions will be effectively controlled, and the possibility of risk spillover is low. Substantial income.
Positive signals from policy
Recently, the policy’s positive attitude towards the local debt problem has attracted widespread attention from the market.
On February 16, Liu Kun, Minister of Finance, published an article entitled “A More Effective and Effective Implementation of a Proactive Fiscal Policy”, again emphasizing the prevention and resolution of local government debt risks. He emphasized in the article that we must persist in “opening the main door and blocking the side door” to curb the increase and reduce the stock. Improve normalized coordinated supervision, and resolutely prohibit disguised debts and false debts. Consolidate the territorial responsibilities of local governments, focus on cities and counties to increase work, and strengthen hidden debt accountability and information disclosure.
Zhou Guannan, chief fixed income analyst of Huachuang Securities, said that regarding the debt resolution in 2023, it is expected that on the one hand, the issuance of refinancing bonds will replace the hidden debt with a short term and high interest rate, prolong the debt repayment period, reduce government financing costs, and alleviate debt. Maturity pressure; on the other hand, some entities or regions with poor qualifications and high debt pressure have gradually promoted debt restructuring through prudent negotiations with financial institutions to ease the risk of short-term debt repayment.
“The current policy level is relatively positive about the debt risk resolution work in 2023, reflecting the great importance attached to the prevention and control of debt risks. Debt replacement and restructuring may become the focus of this year’s debt reduction work, and the current top-down focus on debt issues The degree is relatively high, and the local government’s overall willingness to repay debts is relatively strong.” Zhou Guannan said.
Debt relief tasks were overfulfilled in many places
The debt resolution of local governments is continuing to effectively advance.
After Guangdong and Beijing announced that hidden debts had been cleared, many places recently mentioned progress in resolving hidden debts in their government work reports.
According to the reporter’s statistics, a total of 7 provinces have indicated that they have exceeded the 2022 debt reduction task. The four provinces of Jiangsu, Henan, Shaanxi, and Gansu stated that they had overfulfilled the annual debt reduction plan; Tianjin City stated that they had completed the established implicit debt resolution tasks beyond the schedule, and there was no overdue default; More than 150% of the hidden debt cumulative resolution plan.
Since last year, various regions have continued to send positive debt repayment signals and actions to the market. Yunnan Kanglv has withdrawn from the bond market by coordinating resources to redeem bonds in advance to ensure a smoother rollover of debts by other entities in the region. Guizhou implemented non-bond debt extensions and restructurings to reduce costs and extend deadlines, ease the pressure on short-term repayment of principal and interest, and ensure the smooth rollover of public bonds. Gansu issued a document clearly stating that all bonds will be paid in full and on schedule.
“Urban investment enterprises are important bearers of hidden debts of local governments, and they are also the main force in resolving hidden debts of local governments. At the same time, resolving hidden debts is also an important opportunity for urban investment enterprises to slim down their debts and reduce short-term debt risks.” A A credit bond researcher at a brokerage said.
A series of positive signals boosted market confidence. After the Spring Festival, the primary and secondary markets of urban investment bonds also ushered in an improvement. From the perspective of the primary market, the total issuance of urban investment bonds last week was 113.909 billion yuan, an increase of 57.16% from the previous week; the total repayment amount was 30.695 billion yuan, a decrease of 24.99% from the previous week; net financing increased significantly to 83.214 billion yuan.
From the perspective of the secondary market, the yields to maturity of all grades of 3-year urban investment bonds have declined, and the interest spreads of all grades and grades have shrunk, and the long-term maturity has a larger range. As of February 17, the yield to maturity of 3-year AAA urban investment bonds was 3.08%, down 12.87 basis points from the previous weekend; the yield to maturity of 3-year AAA urban investment bonds was 3.88%, down 10.87 basis points.
And judging from the credit spreads that reflect market sentiment, market sentiment has obviously warmed up. From February 10 to 17, the AAA, AA+, and AA ratings of the 1-year urban investment bonds were reduced by 781, 981, and 1881 basis points respectively; among the 3-year urban investment bonds, the AAA, AA+, and AA ratings were reduced by 611 basis points. , 1,211, and 1,011 basis points; among the five-year urban investment bonds, the AAA, AA+, and AA ratings were compressed by 1,514, 1,514, and 1,514 basis points, respectively.
City investment debt qualification sinking space or open
A number of industry insiders said that the risk of Chengtou’s public bonds is controllable in the short term, and the spread of high-grade Chengtou bonds has been compressed to a low level recently, and the space for the qualification of Chengtou’s bonds to sink may have opened up.
Under the background that local debt risks are under control, it is expected that the benefits brought about by the sinking of qualifications will be considerable.CITIC SecuritiesChief Economist Mingming said that the current bond market game continues, and February is a vacuum period for policies and data, market uncertainties are strong, and institutional investors are more inclined to adopt defensive allocation strategies, so short-term risks are stable. Short-duration high-grade bonds in the region are also more cost-effective, making the spread of low-grade urban investment bonds relatively high.
“Looking forward to 2023, under the new bond replacement cycle dimension, promoting debt replacement from point to area with regional characteristics, and moderately reorganizing some entities that have withdrawn from public market financing will become a high probability event, superimposing ‘steady growth’ In the context of the overall situation, the debt risk in most regions will be effectively controlled, the possibility of risk spillover is low, and considerable benefits can be obtained if the qualification is lowered.” Ming Ming said.
Shenwan HongyuanThe research report released by the securities also stated that although local finance and land revenue are still under marginal pressure in the short term, the redemption of urban investment bonds mainly focuses on the willingness of local governments to repay debts. Many key regions such as Guizhou, Gansu, and Yunnan have passed policies and documents to indicate that they have just paid Determined, under the background of increasing support for centralization bonds, it is expected that there will be no substantial risk events in the short term. However, under the background of frequent occurrence of non-standard defaults in weak areas, it is necessary to pay attention to the valuation risk in the tail area.
“Short-term urban investment bonds breaking through rigid redemption is still a relatively small probability event, and the chance of certainty in coupon income is relatively high. At the same time, considering the risk of valuation fluctuations and the uncertainty of future policy development, it is still recommended to invest with low stability on the liability side Institutions prefer short-term products, and investment institutions with relatively stable liabilities can choose a strong regional long-duration strategy.” Zhou Guannan said.
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