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Bonds

Analyst bemoans China’s bond market rout to Jay Chou’s tunes, and strikes a chord with traders

PUBLISHED : Thursday, 30 November, 2017, 3:04pm
UPDATED : Friday, 01 December, 2017, 11:57am

November had been the worst month in two years for Chinese bond traders, as a rout in the country’s market for sovereign debt and corporate notes caused transactions to shrink, reduced their fee income and even put jobs at risk.

It’s been a particularly hard period for Qin Han, the chief analyst of Guotai Junan Securities’ fixed-income department in Beijing, one of China’s biggest brokerages.

“I was the first to predict the bear market in China’s bonds at the start of 2017,” said Qin, a Michigan University alumnus who had been a sell-side analyst since 2012. “But the buy-side clients didn’t care because that can’t help them make money.”

China’s bond market had been roiled this year, as a government programme to pare debt - known as deleveraging in economic circles - weighed on the market, while concerns about the nation’s economic growth pace held borrowers back from raising capital.

The yield on China’s 10-year sovereign bonds has soared 90 basis points this year to 3.96 per cent, higher than Japan’s 0.04 per cent and Israel’s 1.76 per cent. All three sovereign bonds are rated A1 by Moody’s Investors Service. Corporate bonds have become more expensive, with the average yield premium of three-year AAA notes widening by 30 basis points over government debt to 147.5 basis points, the biggest increase since March 2015, according to Bloomberg data.

To pile insult on a slump, Qin’s team missed out on an annual peer review competition by the New Fortune magazine, to select the industry’s best analysts - an accolade that is vital for career advancements, and which can lead to as much as US$1 million in annual bonus.

Qin, who just turned 30 in November, decided to drown his woes in music, and put the skills honed from writing bond analysis and technical reports into lyrical prose.

Putting up 22,000 yuan (US$3,330) of his own money, he cast all six analysts of his research team in a three-minute music video, bemoaning China’s bond rout to the tune of Jay Chou’s “Fragrance of Rice.”

“Don’t cry, the deleveraging is showing its effect; We can beg the doting central bank in our dream; It’s good to hold your bond to its maturity; Don’t give up so easily,” he sang in his video. The video has been viewed more than 180,000 times since it was uploaded on November 26.

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A day later, he released another song called “In the Name of Debt”, a play on another Chou hit.

“Merciful bond, I’m wandering; Please forgive me for not being able to see the shadow; There’s no money to be made; Bitterness is inscribed behind the bond coupon,” he sang.

Qin produced the two songs many months ago, initially with the aim of releasing them to rally support and lobby for votes leading up to the New Fortune poll, which was scheduled for the end of October.

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But he had to withhold releasing them for several weeks, amid a tight clampdown by Chinese censors on entertainment and internet content while the ruling Communist Party’s twice-a-decade leadership conclave was underway. By the time the security blanket was lifted, the magazine’s poll was over.

“I’d be lying if I said I said I didn’t care about not making it into the New Fortune ranking,” he said in an interview with the South China Morning Post. “I laid in bed for two weeks, burned up by disappointment.”

Still, he found consolation in the reception that his belated paeans had received.

“We produced the two songs and expected it to hit a chord with fellow bond traders,” he said. “But the reaction still outstripped expectation.”

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