Bond issuance in China surged in 2015, reaching nearly 12 trillion yuan ($1.9 trillion) so far, up from the record 7.7 trillion yuan sold last year, according to data provider Wind Information.

This led the Economist to say that the local bond market has never been riskier. In fact the magazine says the bond market is stoking so much risk it could be turning into a bubble much like the stock market before its summer rout.

Last year, the domestic bond market suffered its first default. And as the economy’s growth has slowed down this year, six other companies have defaulted, including a beverage bottler, a solar-panel maker and a cement company. With the government forecasting China’s gross domestic product will continue to see a growth slow down, the Economist says defaults will inevitably rise.

Over the past five years, China has become the third-largest bond market in the world, behind the US and Japan. For most of that time, the yields on highly-rated corporate bonds were two or three percentage points higher than government bonds with the same maturity. However by November that spread had narrowed to just 1.3 percentage points.

Typically, a string of defaults and a slowing economy would make investors wary, leading them to demand more return for their risk in the form of higher yields. Instead, the Economist said investors are lapping them up, sending yields falling, which would imply that investors think corporate bonds have become less risky.

Despite these ominous portents, many Chinese bond analysts take a sanguine view, said the Economist. The increase in issuance has been exaggerated by a debt swap:  as local governments replace about 3 trillion yuan of expensive loans with cheaper bonds. In addition, Hua Chuang Securities, said borrowers should have an easier time making payments as the average interest rate paid on outstanding debt in China has fallen from nearly 7% last year to just over 6% this year.

Another factor offsetting the risk is the central bank will probably keep interest rates low. Shi Lei, head of fixed-income research at Ping An Securities told the Economist he expects yields to come down by as much as half a percentage point over the next year.

Conventional wisdom says a flight to safety during the summer’s stock market crash sent many investors into the bond market, driving up the prices of bonds of all ratings, which in turn drive down yields. Now that the stock market has stabilized, investors are beginning to get more selective, and differentiating between private and government-backed issuers, which has actually helped widen the spreads.

As Asia Unhedged reads this it looks like the Economist has nullified its own argument. Maybe investors aren’t so clueless after all.

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