China’s LGFV Borrowing Costs Drop to Record Low on Bailout Bets

China’s off-the-books local government debt market has turned. Only a few months ago, the sector was flagged as the number one financial risk in Asia, but now borrowing costs have fallen to a record low as investors grow confident authorities will bail out any operations that run into trouble.

In the first half of 2023, local government financing vehicles were paying coupons of well above 4% as concerns about the risk of potential defaults mounted. The average coupon in April on new debt fell to just 2.83% — the lowest level in data going back to 1999 collected by Bloomberg. ...