It’s drama week on the Chinese bond market.
E-commerce giant Alibaba tried to fend off a default as soaring US rates sparked a global selloff in emerging markets.
UniCredit CFO discusses progress of Italian banking reform
Traders sold off emerging markets – including some of the world’s biggest bond issuers – in the wake of the surprise rise in the US 10-year treasury yield to a five-year high of 2.95%.
Société Générale economists say a raft of emerging market bonds has become so over-valued that “nearly all” of the group now faces “some degree of risk.”
The Nigerian government, for example, has paid $50 million to the International Monetary Fund to avoid a full-fledged sovereign default after talks broke down on the release of $1.3 billion in loans.
If that wasn’t a reminder of the developing world’s vulnerability to the giant US interest rate hike, then last night’s headlines on China’s Evergrande Group would.
Bloomberg reported that Beijing stepped in to pay $8 billion of the developer’s debts using a basket of treasury bonds.
The news buoyed Evergrande shares by 8%, but there were no such gains in the dollar debt of the country’s lenders.
News Agency Reuters says Evergrande, which had been struggling to repay debt after facing challenges in its property business, will be allowed to keep re-borrowing on a further $10 billion to avoid a technical default.
It quoted Evergrande’s financial director as saying the government granted the group a “special purpose loan”.
Back to Sanity: The Federal Reserve is raising rates at a faster rate than other central banks.
When asked by a journalist last night about the impact on China of the Bank of Japan’s status quo policy, which keeps short-term interest rates at negative levels, Fed chairman Jerome Powell said:
“The Fed is discussing what it thinks is appropriate relative to policy,” he said. “I would just note what we’ve been doing.”