appConfigEntityId

bodyType

customContents

entityId

entityUuid

isVideo

articlePageQuery

article

articleSchemaContent

content

hooksArticlePageAdvertisementConfigArticle

hooksArticlePageFloatingButtonConfigArticle

appConfig

filter

json

liveArticle

William Pesek

With stocks from New York to Tokyo going gangbusters, it’s hard to get excited about bond markets. In recent years, betting against government IOUs has become a “widow-maker” trade.
Not so anymore, given last week’s burst of chaos in the US Treasury market. On October 3, 10-year yields jumped 11 basis points to 3.16 per cent, the highest since 2011. More than the magnitude, the worry for Asia is why the 15-year downward march in long-term rates may be over.
Traders predictably grasped for explanations. News that Amazon’s Jeff Bezos increased minimum hourly wages to US$15 seemed as good as any – a reminder that drum-tight labour markets could fan inflation. Others pointed to the Federal Reserve’s tightening cycle.
What’s really going on: the bond vigilantes are circling.

The reference here is to the mercurial cast of characters who protest fiscal or central bank policies they deem dangerous. The latter connection is a non-starter. Given tame US inflation rates and latent trauma from the “Lehman shock” 10 years ago, it’s hard to argue Jerome Powell’s Fed is behind the curve.
No, the real force threatening bondland is Donald Trump’s fiscal irresponsibility. Ten months ago, the US president’s Republican Party passed a US$1.5 trillion tax cut an already robust economy did not need. More recently, traders stewed over spending increases that will push Washington’s budget deficit to the US$1 trillion mark, a near-unthinkable trajectory.
The spectre of rising US yields is contributing to chaos from India to Indonesia to the Philippines, where currencies are cratering. Part of the problem is where Trump assumes he can turn to finance America’s shortfalls: Asia. China, especially. It is Washington’s biggest banker, currently sitting on US$1.2 trillion of US government debt.
An obvious paradox worries the vigilantes: Trump’s trade war effectively seeks to bankrupt Beijing. China has already labelled Trump’s tariffs on US$250 billion of goods and counting “blackmail.” Why support Washington’s runaway profligacy? Two can play at this extortion game, President Xi Jinping no doubt realises.
It’s not that simple, of course. If Xi pulled the plug on Treasuries, the surge in yields would slam US consumers. The hit to Chinese exports would add to the pain from Trump’s tariffs. Risks also cut the other way. If 10-year US rates approach the 4 per cent, 5 per cent or even 6 per cent level, Xi’s government will be left with considerable paper losses – and some explaining to do to China’s 1.4 billion people.

Trump’s administration, after all, is making titanically large deficits great again. He is putting Washington’s balance sheet on the trajectory of a pre-1997 Asian tiger. That, in turn, is helping transport Indonesia and the Philippines back towards that dark period. That helps explain why long-term US yields are at a seven-year high.
The shape of the so-called yield curve, a line that plots rates from short-duration to long, is now almost flat. That, says Will Denyer of Gavekal Research in Hong Kong, gives investors few good incentives to buy longer-dated Treasuries. If this rationale leads to higher 10- and 30-year debt, Asia could be in for a rough fourth quarter.
Yasuo Sakuma, chief investment officer at Libra Investments in Tokyo, adds that rising US yields are shaking world markets and contributing to a plunge on tech stocks, which tend to have high price-to-earnings ratios.
The bond vigilantes are just beginning to reassert themselves as Trumponomics imperils Washington’s remaining AAA credit ratings. That vicious cycle is a clear and present danger to Asia’s export-led economies and markets already on edge. A spike on US yields really could not come at a worse time for this region’s emerging economies.
William Pesek is a Tokyo-based journalist and author. He has written for Bloomberg and Barron’s


Who has the upper hand in financial markets, the US or China?

Bad money decisions are coming home to roost for the US and Japan

Hong Kong unveils gold, bond and liquidity plans to drive next phase of yuan adoption

Hong Kong regulators to flesh out new yuan strategy after Beijing meetings

Bonds

Rising US Treasury yields a clear and present danger to Asia’s emerging economies

President Donald Trump’s administration is making titanically large deficits great again. Photo: AP Photo

FILE PHOTO: U.S. Federal Reserve Chairman Jerome Powell holds a news conference following a two-day Federal Open Market Committee (FOMC) policy meeting in Washington, U.S., September 26, 2018. REUTERS/Al Drago/File Photo

FILE - In this Nov. 18, 2016, file photo, men trade buy and sell Indian rupees at a roadside stall set up by Shri Jalaram Gaushala, a shelter for cows, in Ahmadabad, India. India's central bank says nearly all of the currency removed from circulation in a surprise 2016 attempt to root out illegal hoards of cash came back into the financial system. (AP Photo/Ajit Solanki, File)

Buyers beware: China’s property bonds face the highest risk of default among borrowers in 2018

Chinese builders face a record US$31 billion of onshore and offshore bond maturities this year, which may more than double if put options are exercised, Bloomberg’s data show.

syndicated loans and bonds due for Dalian Wanda, HNA Group, Fosun and Anbang (US$b) note: debt includes both parent-company level and subsidiaries in all currencies source: Bloomberg SCMP

top 10 hotel, property and entertainment deals (2012-17) source: mergermarket scmp date target bidder seller value Top 5 hotel, property and entertainment deals (2012-17) Spending spree Source: Mergermarket SCMP Value (US$m) 6,497 5,500 2,600 1,869 1,540 Date Oct 24, 2016 Mar 12, 2016 May 20, 2012 Nov 12, 2014 Jul 11, 2014 Target Hilton Worldwide Holdings (25.01%) Strategic Hotels & Resorts AMC Entertainment Louvre Hotels Group PizzaExpress Bidder HNA Tourism Group Anbang Insurance Group Dalian Wanda Group Shanghai Jin Jiang International Hotels Development Hony Capital Seller Blackstone Group Blackstone Group Marquee Holdings Starwood Capital Group Gondola Holdings feb 13 2015 shanghai zendai property china orient asset management n/a sep 12 2014 club mediterranee *81.17%) fidelidade - companhia de seguros; gaillon invest II nov 8 2016 northstar realty finance corp 9health-care real estate portfolio) (18.7%) taikang insurance group aug 5 2016 ac milan (99.93%) sino-europe sports inves

A Chinese flag flying near apartment buildings in Beijing. Chinese household debt has risen at an "alarming" pace as property values have soared, analysts say, raising the risk that a real estate downturn could send shock waves through the world's second largest economy. Photo: AFP

Economist adds voice to calls for China to cut US Treasury holdings to hit back at Trump’s tariffs

Specialist Meric Greenbaum works at his post on the floor of the New York Stock Exchange, Friday, December 11, 2015. Photo: AP

scmp

Steven Mnuchin, U.S. Treasury secretary, center, displays a 2017 50 subject uncut sheet of $1 dollar notes bearing Mnuchin's name for his wife Louise Linton, left, as Jovita Carranza, treasurer of the U.S. Treasury, stands at the U.S. Bureau of Engraving and Printing in Washington, D.C., U.S., on Wednesday, Nov. 15, 2017. A change in the Senate tax-overhaul plan that would expand a temporary income-tax break for partnerships, limited liability companies and other so-called "pass-through" businesses won the endorsement of a national small-business group today. Photographer: Andrew Harrer/Bloomberg

Professor Yu Yongding, Director of Institute of World Economics & Politics, Chinese Academy of Social Science; and a former member of Monetary Policy Committee of People Bank of China, is pictured in his Beijing office, China. 27 July 2006. **** This photo was licensed for one time use only. PLEASE CLEAR THE COPYRIGHTS WITH THE OWNER BEFORE REPUBLISHING THIS IMAGE.****

The only game in town? Why China will keep buying US Treasury debt

Media reports suggesting Beijing might slow down or halt its purchases of US bonds created a flurry of market activity, but in fact China has little choice in the matter

People line up at a local bank in Beijing which open specially for the first day sale of China's treasury bonds 10 March. China is issuing a record 195.257 billion yuan (23.5 billion dollars) worth of treasury bonds this year, an increase of more than 43 billion yuan from the previous year. AFP PHOTO GOH Chai Hin

A Chinese investor reads a newspaper as he monitors stock prices at a brokerage house in Beijing, Tuesday, Sept. 26, 2017. Asian stocks were little changed Tuesday as investors watched U.S.-North Korean tensions after a decline in tech shares dragged down Wall Street. (AP Photo/Mark Schiefelbein)

Investors stand in front an electronic board at a stock exchange in Shanghai July 5, 2007. China's main stock index closed down more than 5 percent on Thursday, led by large-caps such as Bank of Communications, hit by a rising number of new share issues and the government's plan to issue 1.55 trillion yuan ($200 billion) in special treasury bonds. REUTERS/Aly Song (CHINA)

Sheets of freshly made twenty dollar bills. Photo: AFP

A container is loaded onto a cargo ship at the Tianjin port in China. The US government owes China US$1.2 trillion. Photo: AP

As Treasury yields rise, don’t discount the returns in emerging markets – just yet

Nicholas Spiro says rising Treasury yields might be a call to shift investment away from high-yield bonds but, when adjusted for inflation, emerging markets still look attractive

epa06742047 People shop for the first Ramadan dinner at local bazaar in Van city, eastern Turkey, 16 May 2018. Muslims around the world celebrate the holy month of Ramadan by praying during the night time and abstaining from eating, drinking, and sexual acts during the period between sunrise and sunset. Ramadan is the ninth month in the Islamic calendar and it is believed that the revelation of the first verse in Koran was during its last 10 nights. EPA-EFE/SEDAT SUNA

In this May 4, 2018 photo, technicians works on the wiring of a twin-engine Lakota helicopter, at the Airbus Helicopters, Inc., manufacturing facility in Columbus, Miss. U.S. factories cranked out more appliances, computers and aircraft last month, lifting manufacturing production for only the second time in five months. The Federal Reserve said Wednesday, May 16, that factory output rose 0.5 percent in April after a flat reading in March. (AP Photo/Rogelio V. Solis)

A jaguar sits atop a tree at the Mamiraua Sustainable Development Reserve in Uarini, Brazil, in 2017. Brazil is an attractive hunting ground for investors, as the country’s real 10-year bond yield is above 7 per cent compared to real yield of below 1 per cent for US 10-year Treasury notes. Photo: Reuters 

Business

Banking & Finance

Money

Money News

Wealth

Markets & Investing

Investment Products

Markets

Opinion

A spike in US debt yields is contributing to chaos from India to Indonesia to the Philippines, where currencies are cratering


A spike in US debt yields is contributing to chaos from India to Indonesia to the Philippines, where currencies are cratering.


US Federal Reserve

Expresses the views, ideas and conclusions of the author. (Eg. Enough of Crazy Rich Asians, think of crazy poor Hongkongers.)


Column

Rising US Treasury yields a clear and present danger to Asia’s emerging economies

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}A spike in US debt yields is contributing to chaos from India to Indonesia to the Philippines, where currencies are cratering

A spike in US debt yields is contributing to chaos from India to Indonesia to the Philippines, where currencies are cratering