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China’s corporate bond market is facing its second default after a builder said it may fail to make a payment next week, fueling speculation the government is stepping back from its practice of bailing out borrowers.

One-year swaps jumped 17 basis points yesterday to 4.10 percent, the most in a year, after Huatong Road & Bridge Group Co. said it may miss a 400 million yuan ($64.4 million) note payment due July 23. Chairman Wang Guorui is assisting authorities with an official investigation, according to a July 16 statement that didn’t elaborate. Wang was removed from the Chinese People’s Political Consultative Conference Shanxi Committee on July 9 for suspected violations of the law, according to an official statement and media report last week.

Shanghai Chaori Solar Energy Science & Technology Co. (002506) marked China’s first onshore corporate bond default in March when it missed a coupon payment. Huatong Road would be the first to fail to pay both interest and principal, and would also be the first default in the interbank note market, the nation’s biggest bond bourse. The spike in the cost of the swaps stems in part from the news, according to Wee-Khoon Chong, Singapore-based head of rates strategy for Asia ex-Japan at Nomura Holdings Inc.

“If there isn’t a bailout, I think the impact will be greater” than in Chaori’s case, said Becky Liu, a Hong Kong-based strategist at Standard Chartered Plc. A default in a bond like Huatong Road’s, which differs from the Chaori securities that were exchange-traded, would mean that “the so-called implicit guarantee by the underwriter may be deemed impossible,” she said.

‘Big Impact’
An operator who answered the main line of Huatong Road, based in the northern province of Shanxi, yesterday wouldn’t comment and declined to transfer the call to related people.

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