China Morning Missive
Once again, there’s been a great deal of chatter over the past 24 hours that #China continues to face harsh deflationary pressures. Yes, there are pressures but, no, it’s not as serious as you might imagine.
Just another example of the China macro-tourists not fully appreciating local market dynamics and it is for this reach why I’ve included the graphic below.
That is the Chinese government bond 10-year yield. Notice anything? That’s right, yields have been rising throughout the year, albeit with some volatility.
How to you square that circle then? Yields are supposed to fall when deflation is present. The answer is simple. Investors are now betting that the various Chinese policies meant to alter economic drivers is working. The market is now fully “risk on”.
That then means Chinese investors are selling out of fixed income, sending yields higher, and piling into equities. Is this sustainable? That’s not yet clear. What I’d ask those in the macro world to do, however, is take off the lens of Western markets. It is highly counterproductive.
Cc: nostr:npub1cj94enk44kn5mvrcma4sp7jnlsgnn4em7rk3dh3jt4fzyqs3m02s560efa might want to bring this up when McGlone keeps bringing up the Chinese bond market.
