The divergence between iron ore prices and what is happening on the ground in the only market that matters for iron ore demand is reaching new wides daily. Readers will know that China’s “three red-lines” policy for deleveraging the property development sector is delivering with distressed developers defaulting and dumping assets, credit lines being pulled and funding spreads blowing out. This is all deliberate policy to help restructure the economy away from wasteful construction. But there is a danger that the process goes too far, and what is currently being touted as a move away from “too big to fail” suddenly passes some invisible point of rising risk and credit markets seize up.
Junk spreads in China are blowing out:
Yields on Chinese junk bonds have jumped to levels last hit during the tail end of last year’s market turbulence, signaling growing investor concern about defaults.
