Implode-o-Meter News - If You Thought China's Equity Bubble Was Scary, Check Out Bonds

While an imminent collapse isn't yet the base-case scenario for most forecasters, China's 42.2 trillion yuan ($6.7 trillion) bond market is flashing the same danger signs that triggered a tumble in stocks four months ago: stretched valuations, a surge in investor leverage and shrinking corporate profits. A reversal would add to challenges facing China's ruling Communist Party, which has struggled to contain volatility in financial markets amid the deepest economic slowdown since 1990.
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"The equity rout merely reflects worries about China's economy, while a bond market crash would mean the worries have become a reality as corporate debts go unpaid," said Xia Le, the chief economist for Asia at Banco Bilbao. "A Chinese credit collapse would also likely spark a more significant selloff in emerging-market assets."
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For all the concerns about a bond rout, default levels in China have so far been remarkably low, thanks in part to government-orchestrated bailouts for troubled firms. Just four companies have defaulted on onshore bonds, including Shanghai Chaori Solar Energy Science & Technology Co., which became the first to renege on its debt in 2014.

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If You Thought China's Equity Bubble Was Scary, Check Out Bonds