Countdown to Disaster: Now There's A Bond Bubble

Thanks to the commenter on the previous post who tipped me off to the SCMP article below. The quick summary: Chinese investors have warmly embraced wood chipper investing. A wood chipper investment can turn stack of RMB into confetti. First it was housing (over the course of about 2 years), then stocks (in about 11 months), and now bonds (about 2 months into the bull run). Pressure on the yuan will rise as interest rate differentials mount; the endgame remains the same.

SCMP: China’s bond market bubble may be unsustainable
The equity rout has been a boon to China’s bond market. As fears linger over stocks, yield-hungry capital has headed into bonds, building a bubble that analysts say cannot be sustained. China’s prodigious bond market, the third-largest in the world after US and Japan, has been aided by several factors and started to take off this year.

...Meanwhile, bond trading has also prevailed at the Shanghai Stock Exchange. On September 30, bond trading accounted for over 70 per cent of total turnover in the Shanghai bourse, with less than 30 per cent in stocks, reversing the traditional dominance of scrip in the exchange.
Before I even read this article, the headline reminded me the Jiangsu bond that immediately traded at a discount after issuance. One bond, the 15江苏04, traded down to about ¥96 rather quickly. I covered it here and here.

What do you think the bond trades for today?

This quote from the article sums it all up.

“To some extent, authorities hope to see a thriving bond market, similar to how they pinned hopes on the stock market before,” Zhou said.

Update: If You Thought China's Equity Bubble Was Scary, Check Out Bonds
While an imminent collapse isn’t yet the base-case scenario for most forecasters, China’s 42.1 trillion yuan ($6.6 trillion) bond market is flashing the same danger signs that triggered a tumble in stocks four months ago: stretched valuations, a surge in investor leverage and shrinking corporate profits.

1 comment:

  1. My bond calc is giving me a 1.2% yield on that recently issued 10-yr Jiangsu bond. :O

    Have you seen that all the Asian FX have had giant rallies this past week? Indonesia snapped a 5 year devaluation to the USD with a 8.8% strengthening during Golden Week (what a lucky number!!)

    Something very strange about those FX moves, I'm sure its tied to China somehow.

    - Luke