Bondquake Hits China – Tremors Heading Your Way

16.12.2016 • Emerging Markets

Dan Denning – Southbank Private Briefing (Great Britain) –

One now and three next year. That’s the story on this week’s quarter-point rate hike by the US Federal Reserve. The bond market sell-off continues (the Barclays Global Aggregate Bond Index shedding nearly $1.5 trillion in value). But the biggest aftershock from rising US rates may not be in the energy, commodity or equity markets. It could be China.
Three data points confirm that a 25-year mutually beneficial relationship between the US and China could be coming to an abrupt end. The election of Donald Trump is coincidental. China’s huge debt binge plus the recent strength of the US dollar are combining to set up the country’s next capital crisis.
The first data point is that Chinese authorities suspended trading in the bond market this week. Yields on ten-year Chinese government bonds have spiked. China’s having its own bond market meltdown. Yields are at a 16-month high of 3.4% as sellers worry about China’s massive debts. Capital is in flight.

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