After a brief respite, the bloodbath in Chinese bonds is back, with futures plunging back to lows overnight amid liquidity fears (short-term lending rates are inverted) and growing anxiety over China's almost unprecedented debtload.

As The Wall Street Journal reports, a gradual tightening of short-term credit by China’s central bank - combined with rumors of liquidity squeezes at brokers - prompted a mini-rout in the country’s $8 trillion-plus bond market last week, forcing authorities to reverse course and inject some $86 billion in short- and medium-term funds.

China’s total debt surged to around $27 trillion this year, or 260% of gross domestic product, compared with 154% in 2008 at the start of a stimulus program to offset the financial crisis. It is continuing to grow at more than twice the pace of the economy. Economists say growing amounts of money are flowing into less-productive channels, such as keeping struggling companies on life support, or feeding speculative investments in everything from property to bonds and steel.

And overnight saw the short-term credit markets invert (overnight rates higher than 12m rates) as demand soars...

The bond selloff is raising concerns about the stability of China’s opaque and deeply intertwined credit markets.

“When you have an event like last week people take notice of it, you have to go back and review your China [investment] thesis,” said Jim Veneau, head of Asia fixed income at AXA Investment Managers in Hong Kong, with $2.2 billion under management. “Everyone is nervous,” said Wang Ming, a partner at Shanghai Yaozhi Asset Management Co., which holds $2.9 billion in debt.

And it appears the brief moment of stability has passed...

Pushing bond futures back near their lows...

And while Chinese stocks were 'stable' overnight, Hong Kong was slammed. As Bloomberg reports, for the first time in four months, the city’s benchmark equities gauge has fallen into the red for the year.

The Hang Seng Index’s losses since its Sept. 9 high are approaching 10 percent, while the gauge is close to breaking below the closely-watched 200-day moving average. A separate momentum indicator has dropped to the lowest level since January’s rout.

The $4 trillion stock market, the world’s fourth largest, is losing ground as property developers tumble on rising borrowing costs, inflows from mainland investors dry up and a slumping yuan undermines investor confidence in Chinese assets. The retreat is also a blow to bulls who saw the previous quarter’s jump by the Hang Seng Index -- its biggest in seven years -- as the start of an extended rally after months of global underperformance.

“The crisis is not over,” said Zeng Xianzhao, a fund manager at Chongqing Nuoding Asset Management, with $28.7 million in assets: “The central bank’s liquidity injection only assuaged the crisis but didn’t solve it at its root.”