A little bit, maybe, but probably not entirely. The joke is that debt investors have no memory. For example, Argentina has defaulted many times in recent memory but was still able to market a 100-year bond in 2017 (which it has already defaulted on).
Wow, I had no idea. There are very few entities in the world whose 100-year bonds I would entertain (maybe Switzerland?), and Argentina would certainly be near the bottom. I can't believe they sold two and three-quarter billion dollars'[0] worth!
This is more a sign that the bond rating process remains broken despite some superficial reforms after the 2008 financial crisis. The major rating agencies gave that Argentine bond a B rating which allows many institutional investors to buy, despite the reality that it's obviously garbage. Then when the next default hits the fund managers can blame their losses on the rating agencies. Nothing changes.
In what sense did the rating agencies do a terrible job here? First B is a junk rating, not investment grade. Secondly if you get paid 7.9% for six years plus a market price of 30 cents on the dollar you get back more than 75 cents on the dollar, which would have been comparable to the performance of US 30 year Treasury issued around the same time. People do realize that if the principal is not paid back then whether there is one year or 90 years left on the bond term is irrelevant, right? In other words if you suspect the default risk is high you might as well buy the 100 year instead of the 10 year to get compensated by the higher premium.
Rating agencies have to comply with the SEC registration rules. There are currently 10, but only 3 dominate the market for large bond issues. In theory anyone could start a new one but in practice it would be difficult. The most recent company to obtain registration was Demotech which did it in 2022 but the company had been around since 1985.
Chinese equities suffered a US$3.4 billion outflow from non-resident portfolios in the last month of 2023, while Chinese bonds only had a marginal US$189 million inflow for the same month, according to preliminary data from the Institute of International Finance (IIF) released on Thursday.
That said, once foreign bond buyers realize how much foreign creditors get back from the Evergrande debt (0 cents on the dollar), pretty sure foreign bond purchases will drop fast
"Global investors raised their holdings of Chinese bonds for a fourth straight month, capitalizing on a lucrative currency swap strategy to continue their gradual return to the world’s second-biggest debt market.
They bought 181 billion yuan ($25 billion) of local yuan bonds on a net basis in the country’s main interbank market in December, taking their total holdings to the highest since April 2022, show Bloomberg calculations based on clearing house data."
All of this is besides the point that foreigners are buying China's bonds, as @loeg has stated. They are essentially swapping out riskier equities for the safety of bonds which is by and large what is often taught to do when the economy isn't booming, only to switch back into equities when the downward cycle is over.
It's curious why any FDI happened, except small amounts of speculative investment. Property rights in China have always been highly precarious. It's a huge economy but the game is arbitrary and rigged.
