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Yields again the story as is China/Other, including what HD said

Yields again the story as is China/Other, including what HD said

Peter Boockvar
Aug 15, 2023
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Another day of bond selling started in Asia, spilled over into Europe and has the US 10 yr yield at 4.23%, testing the October 2022 closing high of 4.24% and the 2 yr is kissing 5%. I'll say again, we're all in this bond bed together as we further unwind the epic central bank driven sovereign bond bubble (sorry for the hyperbole). The only bonds rallying are those in China after the PBOC's new governor cut its 1 yr medium term lending facility rate by 15 bps to 2.50% and caught most by surprise. They are pushing on a string but they're trying to do what they can to find buyers for apartments and ease funding challenges for small business. 

The Chinese economy shifting from one dependent on debt, residential real estate and infrastructure spending to one with less debt, a smaller contribution from RRE and more reliant on the consumer is a needed transition but one that will take time and won't be without further pain. I'm still amazed how dour the sentiment and mood is towards the Chinese economy with daily bashing and panic and one thus has to look at this situation from a contrarian viewpoint that a lot has been priced in and it's not as bad as portrayed. The yuan is lower again and at 7.31 is testing its early November level of 7.34. 

US 10 yr yield

Also out of China was a slew of July data where retail sales, IP and fixed asset investment all missed expectations. Specifically with property investment ytd, it fell 8.5% y/o/y vs the estimate of down 8.1%. The bankrupticies and distress being seen, now with Country Garden, is what will cleanse but certainty is painful while doing so. The Shanghai comp was unchanged as authorities are also talking about cutting the stamp tax on transactions but I think that story came out after their markets closed. The H share index was lower by .9% and down 5% ytd.

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