Rising investor concerns over shaky finances in China’s most economically fragile provinces have prompted a sell-off in state-run groups’ bonds, as analysts warn of a surge in defaults in the country’s $17tn credit market.

The median yield on bonds issued by state-owned enterprises in six large provinces and municipalities that suffer from weak finances jumped to more than 5 per cent in the second quarter, up from less than 3.5 per cent a year ago. That contrasts with a nationwide trend in which most SOE bond yields have crept lower over the past six months. Yields rise as bond prices fall.

The financial stresses underscore how Covid-19 and China’s subsequent economic recovery have deepened the divide between the country’s more dynamic regional economies and its less-developed ones. They also come as global investors increasingly scrutinise China’s bond market, where confidence has been rattled by a series of state-linked defaults.