Chinese investors used more borrowed money last month to buy bonds amid a note market rebound, as authorities try to balance efforts to revive economic growth with steps to staunch excessive leverage.
The outstanding amount of repurchase agreements in China’s interbank market, used by bond traders to amplify their buying power, jumped 17 percent in May to 7.8 trillion yuan ($1.2 trillion) from April. In that month it had dropped to 6.7 trillion yuan, the lowest since August. Last month’s increase was the sharpest since December, when the measure hit a record high of 9.7 trillion yuan.
While a jump in leveraged wagers indicates rebounding confidence in the debt market after panic selling in April, any sustained increases would raise concerns about financial stability.
This post was published at David Stockmans Contra Corner on June 16, 2016.
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