Last week, Vanke's debt extension became a market focus, with some investors drawing parallels to Yongcheng Coal’s 2020 default, raising concerns about a repeat of the bond market’s sharp adjustment. In its latest research report, Orient Securities conducted an in-depth comparative analysis, concluding that the current situation differs fundamentally from late 2020. Vanke’s extension has limited impact on market fundamentals and is unlikely to trigger systemic risk contagion. Orient Securities believes this credit event will not significantly alter the bond market’s trading trajectory. The likelihood of accelerated entry by banks, insurers, and other institutional investors remains low, with December likely to see continued weak and volatile bond market conditions.

**The Nature of the Yongcheng Shock** Markets often extrapolate linearly, equating Vanke’s extension with Yongcheng Coal’s November 2020 default, but such concerns appear unfounded. Orient Securities notes that Yongcheng’s impact stemmed from the sudden collapse of "SOE faith" and the ensuing negative feedback loop of wealth product redemptions. Today, weak fundamentals are already market consensus, insufficient to trigger systemic redemptions.

The report highlights: Yongcheng’s default on November 10, 2020, caused massive disruption primarily because it shattered market confidence in AAA-rated provincial SOEs. As Henan’s largest coal producer, Yongcheng had even divested loss-making units and secured additional funding before its unexpected default. The fallout spread rapidly across the credit bond market. In the week of the default, 1-year AAA and AA+ mid-term note yields rose by 14.4 and 17.4 basis points, respectively, with November’s peak increases reaching 28 and 54 basis points. Panic quickly spilled over into rate bonds and money markets, creating a dual shock: 1. Fund products faced redemption pressures, forcing liquidations of highly liquid rate bonds and triggering a "sell-off → NAV decline → intensified redemptions" spiral. 2. Money markets experienced rare mid-month liquidity stratification.

Notably, the PBOC responded swiftly to stabilize the market. It ramped up liquidity injections the same week, with net reverse repo operations turning positive (totaling CNY280 billion from November 11–13) and a CNY600 billion MLF injection on November 16. Money rates retreated rapidly, with DR007 and R007 largely normalizing by November 17. Bond market turbulence also eased after financial regulators signaled stability on November 21.

However, the deeper driver of late 2020’s bond rally was Yongcheng’s disruption of macro expectations. The default occurred amid improving H2 2020 economic data and market anticipation of PBOC tightening. The credit risk shock forced a reassessment of recovery sustainability and policy direction, ultimately pushing bond yields significantly lower.

**2020 Rally Unlikely to Repeat** Compared to Yongcheng, Vanke’s extension lacks systemic impact. The report stresses that while the PBOC acted decisively in 2020, current risks remain contained, meaning "neither heavy liquidity support nor regulatory intervention is needed."

Key differences include: 1. Weak property sector fundamentals are already priced in. Though the extension timing surprised some, it didn’t break any "faith," causing far less panic than Yongcheng. Any short-term credit spread widening should be limited, with minimal spillover to rates or money markets. 2. With credit risks contained, money and bond market feedback loops remain mild. Last week’s adjustments stemmed mainly from unstable fixed-income product liabilities and fund regulation concerns, not Vanke itself. By week’s end, long bonds led a marginal recovery, with 10-year CGB and CDB active yields shifting 1.7/2.5bps to 1.83%/1.90%. Crucially, this event won’t reset macro expectations or prompt institutional investors to accelerate bond purchases.

**December Outlook: Manageable Liquidity** For December, liquidity pressures appear manageable. This week’s CNY456.7 billion government bond issuance is mid-range for the season, with fiscal spending likely to rise year-end, easing money market strains. Last week’s CNY55.8 billion net PBOC injection saw mixed rate movements, with DR007 fluctuating stably at 1.45%-1.47%.

However, Orient Securities cautions that broad bond trading opportunities remain scarce. Expectations of higher long-term rate ceilings may dampen sentiment. Last week saw rate bonds rise across tenors, led by 7-year CGBs (+3.8bps).

In summary, investors should avoid mechanically applying late 2020’s playbook. Current conditions—market environment, event nature, and macro outlook—differ fundamentally. A cautious stance on December’s bond market is prudent.