Yields on Chinese junk bonds have fallen by 30-40 percent over the past two years, as the hunt for yield goes global. (NYT) If "Chinese High Yield Debt" doesn't put the fear of God in you, read this:
Chinese junk bonds also have a unique structure, which could leave investors vulnerable. Mainland China’s domestic bond market remains largely off limits to foreign buyers. So most investors buy offshore Chinese bonds, which are issued through holding companies headquartered in places like the Cayman Islands. The bonds tend not to be backed by the actual businesses and underlying assets in mainland China. That means foreign bondholders may have little legal recourse if a company defaults on its debt, especially if local banks or other Chinese creditors make claims.
Investment advisors should be checking any high yield funds they have for China exposure, as this will surely end badly.