China's promise of a "comprehensive" package to address local debt issues has triggered a rush into bonds issued by local government financing vehicles (LGFV) as investors sense an implicit state guarantee for these provincial firms. Yields on LGFV bonds, which account for half of China's corporate bond market, have dropped to their lowest levels this year, even as a debt crisis in the property sector that most of them are exposed to deepens. Data from Chinabond, a platform that's part of the China Central Depository and Clearing, shows spreads on one-year AA- rated bonds over comparable government bonds, have dropped from 353 basis points (bps) at the start of the year to around 173 bps, the smallest gap since late 2020.