Bond markets around the world have survived the great fall of China relatively unscathed, despite the global equity sell-off of the last few days.
Analysis by S&P Dow Jones Indices shows that while equity indexes around the world have taken a hit, bond markets, including Chinese sovereign bonds, have been stable.
The China S&P China Sovereign Bond index, which tracks the performance of local currency-denominated sovereign bonds from the country, yielded 3.19%, with annual one-year returns of 8.49%, at close of business on Monday. The analysis said the index was trading at the same yield as of June 1, when equity volatility in China began.
Between June 1 and Aug. 24, the index has yielded between 3.07% and 3.23%, which Heather McArdle, director of fixed-income indexes at the firm, said in a statement was “a considerably tight range considering the uncertainty and volatility in the region.
The S&P/CITIC 300, which covers stocks listed on both the Shenzhen and Shanghai stock exchanges, lost $297 billion, or 8.55%, between Aug. 21 and Aug. 24. The Shanghai Stock Exchange Composite index lost 8.5% on Monday and fell a further 7.6% Tuesday.
The moves show that Chinese sovereign bond markets have low correlation to the Chinese equity market, said Ms. McArdle. “They behave like most other AA-rated bonds in terms of lower volatility and 'flight to safety' behavior. Chinese sovereign bonds also have relatively higher yields compared to other AA-rated countries.”
European bond markets also were relatively sanguine about volatility elsewhere. The S&P Germany Sovereign Bond index yielded 0.21% at close Monday, vs. 0.19% at close Aug. 21. By comparison, the S&P Germany Broad Market index fell 2.31% in U.S. dollar terms on Monday.
The S&P Spain Sovereign Bond index, which Ms. McArdle said has a “higher risk profile than Germany,” tightened slightly, closing at 1.24% on Monday, vs. 1.2% on Aug. 21. The S&P Spain BMI lost 2.86% in U.S. dollar terms on Monday, showed data from S&P DJI.
“Despite risk profiles, the stability of these indices show the appeal of bond markets in times of global market turmoil,” added Ms. McArdle.