International Bonds Weekly : Australia and China
Top tiered Chinese banks will hit the domestic bond market for US 21 bio in Basel 3 compliant sub debt as loan growth slowed dramatically.
Most analysts are unwilling to relinquish their risk call on China and their $14 trillion corporate debt market which is estimated by the S&P to be larger than the US’s.
Yet we have not had a default so far as Huatong Road & Bridge avoided defaulting in last minute payment late July without disclosing their source of funds. http://online.wsj.com/articles/chinas-huatong-road-bridge-avoids-bond-default-1406102163
My view is that the risk of a Chinese default is as good as an American default and there is beauty in information blackout behind their iron curtain.
(Interesting article on dubious Chinese data : http://www.project-syndicate.org/commentary/zhang-monan-exposes-the-faulty-data-underlying-china-s-status-as-the-world-s-largest-trading-economy)
CNH bonds not seeing much traction as domestic issuance picks up pace and I am proud that an old friend (and former contributor to the blog) will be launching a retail domestic CNY bond fund which I will be looking into.
I still view China as a decent safe haven and one of the paths of least evil in the investment sphere and my USDCNH near term target of 6.15 has been reached (it was a better call then USDJPY) https://tradehaven.net/market/safe-haven-war-cnh-chf-and-eur/.
There is a high chance of 6.12 in the coming days as China and Japan continue to liquidate their US treasury holdings which is surely not to buy into the Alibaba IPO. http://www.bloomberg.com/news/2014-08-15/u-s-investment-outflow-reaches-record-as-china-sells-treasuries.html
Australia steam rolls competition away with a decent week of numbers and continue to demonstrate all signs of a safe haven punt.
Market concern is that AUD yields are closing in on US yields and my slightly defiant view is, why not ? AUD is not a NZD !
On all accounts, Australia is standing on better ground than the US and migration continues to egg their GDP and economy. The government is one of the lowest leveraged ones around (DEBT/GDP 32.6% for 2013) and there is little to complain about granted that the country has yet to move from its heavy dependence on the mining industry.
Housing market concerns are starting to emerge as foreign buying surged and Australia’s jobless rate has surpassed the US’s rising to a 12 year high of 6.4%.
The market consensus is for RBA to remain on hold through 2015 which is a bummer against the expectation for the Fed to hike as early as end 1Q15.
Next week’s Jackson Hole summit could be a game changer for the AUD dollar, given that external events and forces play a bigger role in currency movements than onshore concerns. Thus it would be prudent to presume we shall see a potential currency correction and nothing on the bonds.
I have added more bonds to the list, including unlisted AUD debt, although it is far from comprehensive still and I shall keep working on it.