Credit Bubble Bulletin

Credit Bubble Bulletin2020-05-20T17:01:05-06:00

Presented by Doug Noland

Daily Commentary

Friday, October 15, 2021

[Yahoo/Bloomberg] U.S. Stocks Hold Gains as Brent Hits 3-Year High: Markets Wrap

[Reuters] Stocks advance on robust earnings, inflation fears ebb for now

[Reuters] Oil prices rise on tight supply, set for weekly gain of more than 2%

[Yahoo/Bloomberg] Metals Surge as the Energy Crisis Knocks Out More Supply

[Yahoo/Bloomberg] Debt Markets Unshaken as China’s Dollar Junk Yields Hit 20%

[Reuters] U.S. retail sales unexpectedly rise in September despite shortages

[Yahoo/Bloomberg] China Breaks Silence on Evergrande, Says Risks Controllable

[Yahoo/Bloomberg] PBOC Keeps Status Quo on Liquidity With Policy Loan Rollover

[Yahoo/Bloomberg] China Eases Mortgages for Rest of Year on Evergrande Contagion Worries

[Reuters] Hungry for fuel, China looks to the U.S., Europe eyes relief plans

[Reuters] U.S. banks see wealth management boom on borrowing, new assets

[CNBC] Chip shortage could persist for another 2 to 3 years, major Chinese consumer goods maker warns

[Yahoo/Bloomberg] Aluminum Makers Sound the Alarm About U.S. Magnesium Shortage

[AP] Shredded Banksy artwork sells for $25.4 million at auction

[Reuters] Russia and China hold joint naval drills in Sea of Japan

[Bloomberg] Container-Ship Traffic Jam in Southeast Asia Worst Since April

[Bloomberg] China’s Central Bank Says Inflation Risks Are Controllable

[NYT] Rising Rents Are Fueling Inflation, Posing Trouble for the Fed

[WSJ] Trading Furor Complicates White House Decisions on Fed Leadership

[WSJ] Oat Rally Reaches Records Amid Drought

[FT] Rising inflation pierces investor complacency

[FT] Biden’s $3.5tn spending plan: ‘There are choices to be made’

[FT] China coal futures post record weekly increase

Weekly Commentary

October 15, 2021: Controllable

Now that was wild. Let’s start with the Chinese developers. Indicative of the more troubled companies, Kaisa Group bond yields surged to almost 51% in Wednesday trading, up from 36% to begin the week (20% to start the month). Yields closed the week at 44.7%. After beginning the week at 23.3% (October at 16.6%), Yuzhou Group bond yields surged to almost 38% in Thursday trading, before reversing sharply lower to end Friday’s session at 27.7%. China Aoyuan yields began the week at 16.6%, jumped to almost 20% on Thursday, but were back down to 17% by week’s end. Evergrande yields ended the week at 75%. Acute instability for the bonds of a sector that, according to Nomura, has accumulated a frightening $5 TN of debt.

An index of Chinese dollar developer bonds began the week with yields of 17.5%, up from 14.4% to begin the month and 10% back in July. Yields closed Thursday trading at a record 20%, before closing the week at 19.3%.

Ample volatility as well in the cost of insuring against default for the major Chinese banks. China Development Bank CDS surged 10 Monday to 77 bps, up from 43 bps points at the beginning of September to the highest level since the pandemic crisis. China Development Bank CDS then reversed sharply lower, ending the week down at 62 bps. Industrial and Commercial Bank of China CDS traded to 78 bps (high since April ’20), up from 48 on September 17, before closing out the week at 76 bps. China Construction Bank traded to a post-pandemic high 75 bps (ended week at 74), after beginning the year at 36 bps.

It’s been a wild ride for China’s sovereign CDS. After beginning October at 47, China CDS closed last week (10/8) at 52.5 bps. Prices spiked to above 60 early in the week (high since April ‘20), before reversing lower to close Friday at about 50. Indonesia CDS traded to an almost one-year high 96 bps Tuesday, before reversing sharply lower to end the week at 86. Malaysia CDS rose to a 15-month high 66 bps on Tuesday, before ending the week at 60 bps. India CDS jumped six this week to a six-month high 88.5 bps. Turkish yields surged almost 100 bps to 18.85%.

Global markets in the first half of the week traded with a problematic dynamic of high correlations, rising sovereign yields, widening Credit spreads, increasing CDS prices and sinking stock markets. Miraculously, yields, spreads and CDS prices reversed sharply lower, as stocks surged higher. (more…)

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