China downgrade does little to sour bonds

When a rating agency downgrades a major economy, it is supposed to be big news. But after Moody’s cut its rating on China from Aa3 to A1 on Tuesday, debt investors largely shrugged.

Chinese credit default swaps moved only a few basis points, new issues were not much worse, and a few hours after the downgrade, China National Chemical Corp started taking orders for a new dollar bond. Why did the news not have a bigger impact

In part, it is because Moody’s has long flirted with downgrading the country. The rating agency put China on negative rating outlook last March, and has been mulling...