Corporate Yield Gap Shrinks as Lending Curbs Ease: China Credit
Oct. 31 (Bloomberg) -- Chinese companies’ borrowing costs in yuan are sliding at a record pace relative to the government’s as lending curbs are relaxed to combat a slowdown in Asia’s largest economy.
The difference between yields on 10-year local-currency notes issued by top-rated companies and sovereign debt narrowed 35 basis points since September to 192, poised for the biggest monthly drop in Chinabond data dating to September 2007. The gap reached a record 236 on Oct. 11. The extra yield demanded to hold similar-maturity U.S. corporate notes instead of Treasuries shrank 54 basis points to 155, data compiled by Bloomberg show.
Premier Wen Jiabao said last week that the government will fine-tune economic policy as needed, fueling speculation two years of monetary tightening will be unwound as inflation slows. Companies are taking advantage of falling borrowing costs to sell more debt, with October issuance of 302 billion yuan ($48 billion) on track to the highest total for a month since March, according to data compiled by Bloomberg.
“China’s inflation, the most important factor for the bond market, is no doubt on a slowing trend,” said Lu Xin, a fund manager at Everbright Pramerica Fund Management Co., whose Advance Income Bond fund A has handed investors a 2.7 percent return this year, the second-best performance among more than 160 bond funds tracked by Bloomberg. “There may be bigger declines in corporate bond yields from the beginning of next year as inflation trends down.”
Reserve Ratios
The inflation rate was 6.1 percent in September, down from a three-year high of 6.5 percent in July. The People’s Bank of China raised the amount major banks must keep in reserve to a record 21.5 percent from 17 percent in the past year to help rein in consumer-price gains, with the most recent increase taking effect in June. The ratio for smaller lenders was boosted by a similar amount to 19.5 percent, while benchmark interest rates were raised five times since September 2010.
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In California, payday lenders charge a 460 percent annual interest rate for a two-week cash advance on a borrower's pay or benefit check. The terms at major commercial banks are only slightly better -- an average of 365 percent for a 10-day cash
Essentially, payday loans are short-term cash advance provided usually to consumers until the next paycheck. Mostly, this form of lending is useful in urgent situations requiring additional money. These no credit check loans belong to the category of
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When in search for a quick cash loan, many consumers tend to search for direct cash advance lenders. The belief is that a direct lender will typically be cheaper, offering lower interest rates as there is no middle man in the transaction. But is this really a fact?
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