It should be noted that domestic companies typically issue U.S. dollar bonds in Hong Kong, which are then listed and traded in places like Singapore. During the National Day holiday, our local markets are closed, but overseas capital markets remain open, so it's not surprising to see bond transaction records; there's no need to doubt the authenticity of the transactions.

A 50% drop in the price of U.S. dollar bonds may seem astonishing, but if you're aware that Evergrande's U.S. dollar bonds had already plummeted by more than 90%, it might not come as a shock. After all, the implementation of coercive measures against Evergrande's chairman, Xu Jiayin, on September 28th was a significant bearish factor, and Evergrande's U.S. dollar bond prices had already hit rock bottom, so a further decline is not unexpected.

What is truly surprising is that even as the price of U.S. dollar bonds drops from $100 to $2, there are still people willing to invest real money to purchase them. Could it be that their money just blows in on the wind?

Absolutely not! To understand why someone would take over Evergrande's U.S. dollar bonds at this time, one must first understand what these bonds are.

You've probably heard of real estate companies' foreign debts, right? They mainly refer to U.S. dollar bonds. After real estate companies issue bonds in the Hong Kong market and borrow U.S. dollars, they form foreign debts.

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Currently, Evergrande has the largest amount of outstanding foreign debt, which is about 145 billion yuan when converted to RMB. Other real estate companies like Sunac and Country Garden also have significant amounts. The so-called foreign debt restructuring refers to a series of debt resolution plans for the principal and interest of the U.S. dollar bonds that have not been paid.

Don't assume that U.S. dollar bonds are unreasonable just because you hear about them. In fact, the country encourages Chinese-funded enterprises to use foreign capital to develop domestic industries. Even a national enterprise like Huawei issues U.S. dollar bonds, and the largest state-owned bank in China, the Industrial and Commercial Bank of China (ICBC), does the same.

From this, it's clear that U.S. dollar bonds are a conventional financing tool, not a means of transferring domestic assets abroad as some conspiracy-obsessed self-media might claim.

The face value of U.S. dollar bonds is generally $100 each, meaning you can buy one for $100. The coupon rates vary, with ICBC and Huawei's U.S. dollar bonds offering an annual interest rate between 4% and 5%. Real estate companies' U.S. dollar bonds have extremely high interest rates, with the lower end at 7% and the higher end reaching 12%. This is why real estate companies' U.S. dollar bonds were quite sought after during the boom in China's real estate industry. There was no need to worry about non-payment, and a 10% annual return on investment was indeed very attractive.

As the real estate industry's boom wanes and many real estate companies face cash flow crises, some have stopped making payments altogether, causing the prices of real estate companies' foreign U.S. dollar bonds to plummet.At this point, some might be confused. It was mentioned earlier that each US dollar bond is worth $100, so how can the price fluctuate? This is because the face value of a bond and its market trading price are two different things. Let me give you an example.

Suppose Company A issued a two-year US dollar bond at the beginning of this year with a face value of $100 and an annual interest rate of 7%. Under normal circumstances, purchasing one bond would yield $7 in interest by the end of this year, and by the end of next year, in addition to receiving another $7 in interest, you would also get back the $100 principal. This means that after two years, a $100 investment would yield a total of $114 at maturity, with a maturity yield of 14%.

After Company A issued the US dollar bond, it applied for a listing and trading, allowing bondholders to sell directly to others and cash out. For instance, if Zhang San subscribed to one bond and sold it after listing at a price of $101, and Li Si bought it, then $101 is the price of the US dollar bond. If it was sold to Li Si for $99, then the price would be $99. There are multiple transactions of US dollar bonds every day, so the price of Company A's US dollar bonds is always changing.

The face value of the US dollar bond remains unchanged, always $100, and the interest is calculated based on the face value multiplied by the annual interest rate. The principal that Company A pays back at maturity is also the face value amount ($100).

After understanding the above, we can analyze the motives of those who currently purchase Evergrande's US dollar bonds. In a word, it can be described as "playing with small stakes for big gains," which is a high-risk speculative behavior.

Let's look at the Evergrande US dollar bond maturing in January 2024 mentioned earlier. Its face value at issuance was $100, with a term of 4 years and an annual interest rate of 12% (quite high). Normally, holding to maturity would yield a return of $48 for every $100 invested.

When it was first issued, the price was between $98 and $101, which was quite normal. However, after negative news about Evergrande gradually emerged in May 2021, the price began to plummet, and it is now only $2.335. In other words, you can buy a bond with a face value of $100 for less than $2.5, but Evergrande has already stopped paying interest, and whether you can get the principal paid back in the future is uncertain.

However, there is a significant room for speculation here. If Evergrande "comes back to life," what would happen? Let's analyze it.

If you buy a US dollar bond with a face value of $100 for $2.335, and it matures in January next year, you would at least receive half a year's interest, which is $6, plus the principal, totaling $106. An investment of a little over 4 months earns $103.665, with a return rate as high as 4440%. Does that sound like a get-rich-quick scheme?

Most people do not believe that Evergrande can "come back to life," which is a matter of different perspectives. Before Xu Jiayin's incident, Evergrande originally planned to hold a meeting of overseas creditors on September 25th to vote on whether to pass the overseas debt restructuring plan. According to previous news, it was highly likely to pass, similar to Sunac's case, because Evergrande's creditors have few options; if they don't pass it, they would lose even more.The price of post-issuance dollar-denominated debt is bound to rebound. Without claiming a significant increase, reaching $4 represents a 71.3% return on investment, and reaching $10 equates to a staggering 328% return. Once the rebound occurs, it can be immediately sold on the secondary market, with the holding period ranging from a few days to a month, which is quite tempting.

Even without selling, there is still a very high potential return. Taking Sunac's overseas debt restructuring plan as an example, one of the debt resolution measures is to exchange for convertible bonds, which mature in 9 years with an annual interest rate of 1%. For investors who have a cost of only a few dollars or even lower, receiving a cumulative $109 after 9 years ($100 principal plus $1 in interest per year) cannot be described as a loss, can it? Moreover, the newly issued convertible bonds by Sunac can be traded in Singapore, so if one is really short of money, selling them might not necessarily result in a loss.

In summary, while Evergrande's dollar-denominated debt has indeed become "junk bonds," it does not mean they have no investment value at all, or rather, they possess a very high speculative nature. It is a classic case of betting big with a small stake; investors buy with the mentality of purchasing lottery tickets, and if they win, it can be extremely profitable.

High risk often conceals potential high returns, and the financial market is never short of speculators; there are always people willing to risk their necks for a chance at profit.