Lower-Rated Chinese LGFV Bonds’ Spreads Shrink on Support Steps

Spreads for low-rated Chinese local-government financing vehicles’ notes are at their tightest levels in years, impacted by efforts to pull up the country’s economy and markets.

The yield premium for 1-year AA- rated LGFV yuan bonds versus comparable central government debt fell below 150 basis points for the first time since 2020 this week, according to data compiled by Bloomberg. Meanwhile, the spread for 3-year AA rated LGFV notes has narrowed to less than 115 basis points, the least since the early days of an onshore corporate-bond rout last November.

As yields for both of those LGFV bond classes ...