Economy

xchrom

(108,903 posts)

19. China Is Headed For Its First Domestic Bond Default — And Here's Why That's A Good Thing

Wed Mar 5, 2014, 08:31 AM

Mar 2014

http://www.businessinsider.com/china-to-see-first-onshore-bond-default-2014-3

***SNIP

A silver-lining

But the bond default might actually be a good thing. "A normal economy needs defaults to better price bonds and other debt products," writes Ting.

We have previously pointed out that this can actually help investors have more information to better price risk.

"If you talk to anyone in China, if you talk to them about the prospect of a financial crisis, the first thing out of their mouths will be that the government will never let that happen," Patrick Chovanec at Silvercrest Asset Management told Business Insider in January. "And until you shake that belief you won't have efficient allocation of resources."

"At some point the financial system does have to turn the corner, where there's real risk and there's real pricing of risk," Chovanec added.

Read more: http://www.businessinsider.com/china-to-see-first-onshore-bond-default-2014-3#ixzz2v5hTWNqD

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