| | | China Credit update: ggersh, Yes rising relative US yields... the 10 year US note/ 10 year bund yield is 260 basis points, the greatest since 1989. Which was when the Berlin wall came down and Germany let go of a degree of ultra conservative fiscal monetary policies to absorb the weak east Germany.
And a USD in an uptrend lends itself to capital inflows into US debt and equity markets . The dark negative side of these phenomenons occurs when the global shift in relative yields and currencies is to abrupt and leads to cracks showing up in foreign currencies that are pegged to the USD... and also unpegged currencies.
ANOTHER powerful adverse impact of too swift a move up in either or of the USD and US short and long rates is that it is the reference point for a large percentage of global loans, forward contracts on the full monty of business transactions, with so many of them being denominated in USD terms and numerous commodities being denominated in USD terms
Others that are pegged to the YUAN are impacted by bigger moves moves in their currency and money markets.
China continues to experience adverse issues with there massive exponetial expansion of debt over the past 15 years..
China1. Rate increases are putting pressure on the nation’s property markets. Here is the Shanghai Exchange Property Index.
2. Note that higher rates – driven in part by the Fed – also caused the Hong Kong real estate market bubble to begin deflating.
There are a number of global housing markets that have been deflating during the second half of 2016, from London, New York, Paris, Miami, Houston, Rio, Hawaii top end properties selling for 50% of their 2013 sales price.
3. Speaking of bubbles, China’s wealth management products universe is not in a good place these days. The corporate bond selloff is forcing some deleveraging, and it’s not clear how far it will spread. Here is the AA+ corporate yield.
The high grade bonds yield spread continues to increase as investors scramble to get out of lower credit quality paper.
This is causing some desperation among bond market participants to obtain financing, resulting in scandals such as this one.
Source: @FT; Read full article
And there is a lot of corporate debt out there.
In the meantime government debt is also selling off, especially on the short end, causing the yield curve to begin inverting.
Inverted Yield Curve are one of the most very best predictors of economic downturns / recessions. Banks and Financial institutions are really whacked as the cost of funding goes negative and burns up some of your balance sheet.
(btw. The HIBOR... borrowing rate is also inverted currently....that's not good either.)
and this is not being brought on by the PBoC market operations. More a function of the exhaustion of the Multiyear Debt expansion and the government propping up state owned companies that are running negative margins and negative earnings yields.
The Chinese government yield curve has in the space of ONE WEEK gone from being quite steep from 3 months out to 7 years and almost magically inverted from 3 month to 6 years..... I don't believe there is a previous example of a government yield curve of a Global top 7 economy in GDP terms ever doing that this quickly
of course, the Chinese have for years and years been "different".... just like Japan was in the 1980's... the dot.com mania of 1997 to March of 2000... The Housing and CDS / CDO bubble of 2007, the Asian Tiger economies of the early 1990's were the South Korean equities melt down bu 80% from 1991 to 1994.
4. Recently the offshore renminbi has been stronger than the onshore currency at times. Given the downward pressure on the currency, the more “free floating” offshore yuan should be cheaper. This anomaly has to do with the tight funding market for renminbi in Hong Kong.
Source: @wsj; Read full article
5. Bitcoin is approaching $800, in part driven by the demand from China’s residents.
6. Separately, Xi Jinping’s anti-corruption drive has been relentless, often bringing down low-level officials, some of whom were innocent.
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