Weaker than expected factory activity in China and a weaker renminbi were said to be the driving sentiment
China got an early chance to try out its new circuit breaker suspension mechanism that halts trading after its equity indices crashed in the first session of 2016.
The CSI Index lost 5% in early afternoon, prompting a circuit breaker that suspends trading for 15 minutes.
When trading resumed the index fell 7%, triggering another circuit breaker that suspends trading for the rest of the session.
The Shenzhen exchange meanwhile lost 8.2%.
The sell-off spread across the region with the Nikkei losing 3.1% and the Hang Seng 2.5%.
MSCI's broadest index of Asian shares ex-Japan fell 2.5%.
Weaker than expected factory activity in China and a weaker renminbi were said to be the driving sentiment as well as the upcoming expiry of a ban on share sales by listed companies' major shareholders.
The ban was put in place in the summer after declines of similar levels on Chinese indices.
The bear market carried over into bonds with investment grade names generally quoted 3-4bp wider.
The iTraxx investment grade Asia ex-Japan was quoted 2bp wider at 140.50/142.50.
However, some of the more liquid names had decent sessions such as CNOOC's 2023s, which saw its yield tighten 6bp while Petronas' 2025s also tightened 6bp according to Tradeweb.
"Chinese equities were in free fall today and it definitely affected us," said an investment grade bond trader based in Singapore.
"Hopefully it won't last and we'll get some more supply and there were actually some goods signs of that today."
Traders said they would be paying close attention to US non-farm payrolls which are scheduled to be released on Friday. Government bonds were broadly less volatile. The largest movements came from Thailand where 10-year sovereigns widened 6bp and Indonesia where benchmark sovereign bonds tightened 4bp.
Some of the more recent Asian issuers had solid sessions. Yields on ICBC London's 2018s tightened 2bp while China Construction Bank's AT1 tightened 3bp.
The primary market showed some signs of life in a busy day marked by a string of blue chip mandate announcements, such as Swire and Ping An.
Syndicate bankers said they expected January to be busy, as it historically is, but said that if the sell-off in Chinese equities was prolonged it would slow things down quickly.
"We saw some good names announce roadshows on Monday, and while maybe they wish they hadn't, it's good to see them come out," said a syndicate banker based in Hong Kong.
"We're expecting to bring a few more investment grade and high-yield names to the market this month, but more problems in China would push some issuers to the sidelines."
Image: A Chinese investor reacts. Photograph: Reuters
The image is used for representational purpose only
