China Evergrande Group, once China's top-selling property developer, has inched closer to a key deadline where it risks a default on its bonds.
But world markets were calmer as investors and analysts played down the threat of its troubles becoming the country's “Lehman moment.”
While concerns about the spillover from a messy collapse roiled markets on Monday, US stocks were flat on Tuesday. The US dollar held relatively steady and the US's corporate bond market steadied.
“There's been a fair bit of concern about the possibility of contagion from the meltdown at Chinese property developer Evergrande,” analysts at New York-based Bespoke wrote in a research note on Tuesday.
“But so far that concern isn't showing up in parts of the credit markets that have served well as red flags for broader credit crunches in the past.”
A major test for Evergrande comes this week, with the firm due to pay $US83.5 million ($A115.3 million) in interest relating to its March 2022 bond on Thursday. It has another $US47.5 million ($A65.6 million) payment due on September 29 for March 2024 notes.
Both bonds would default if Evergrande fails to settle the interest within 30 days of the scheduled payment dates.
Evergrande missed interest payments due Monday to at least two of its largest bank creditors, Bloomberg reported on Tuesday, citing people familiar with the matter. The missed payments had been expected as China's housing ministry had said that the company would be unable to pay on time, Bloomberg said.
As investors and policymakers around the world tried to assess the potential fallout, Securities and Exchange Commission (SEC) chair Gary Gensler said the US market is in a better position to absorb a potential global shock from a major company default than it was before the 2007-2009 financial crisis.
Fed Chair Jerome Powell will likely be asked about the fallout from Evergrande when he speaks after the Fed's two-day meeting that wraps up on Wednesday.
Despite the looming default, some funds have been increasing their positions in recent months. Fund giant BlackRock and investment banks HSBC and UBS have been among the largest buyers of Evergrande's debt, Morningstar data and a blog post showed.
Other bondholders include UBS Asset Management and Amundi, Europe's largest asset manager.
In any default scenario, Evergrande, teetering between a messy meltdown, a managed collapse or the less likely prospect of a bailout by Beijing, will need to restructure the bonds, but analysts expect a low recovery ratio for investors.
S&P Global Ratings said on Monday it believed the Chinese government would only act in the event of a far-reaching contagion posing systemic risks to the economy.
In an effort to revive battered confidence in the firm, Evergrande Chairman Hui Ka Yuan said in a letter to staff that Evergrande will fulfil responsibilities to property buyers, investors, partners and financial institutions.
Mainland China's stock and bond markets, foreign exchange and commodity futures markets, which were closed Monday and Tuesday for Mid-Autumn Festival, resume trade on Wednesday, but Hong Kong's financial markets will be closed for a public holiday.
Evergrande's shares fell as much as seven per cent on Tuesday, having tumbled 10 per cent in the previous day, on fears its $US305 billion ($A421 billion) in debt could trigger widespread losses in China's financial system in the event of a collapse. The stock ended down 0.4 per cent.Internet Explorer Channel Network