May 2. China NPL

–The Financial Times continues to warn about China’s bond markets.  As mentioned over the weekend, it ran this piece last week, ‘China’s bond market is on edge’
http://www.ft.com/intl/cms/s/0/7246cf2c-0a95-11e6-9456-444ab5211a2f.html#axzz47P4eaX5S
And today the FT has a story with this headline ‘Worries mount over China’s bond market’ …rising defaults and monetary easing sap investor appetite.   There’s a visual in the Daily Shot today that shows a steadily increasing amount of non-performing loans.  When we get down to the core of a crisis, it occurs at the tipping point when debts can no longer be counted as assets, because there is no probability of full repayment.  Despite monetary stimulus that has juiced some commodities, both by China, and the US (in the form of inaction), China seems to be lurching towards that tipping point.  On a smaller scale of course, we see it in Puerto Rico, which is missing a payment today.  Banking shares globally reflect these concerns, and negative interest rates combined with flat curves augment the challenging environment.
–On the other hand, gold bugs are delighted to see new highs, with another $10 tacked on this morning to stand just over $1300/oz.  Additionally some pressure has been alleviated throughout the financial system as a result of oil’s rally.  However, stories are now appearing about significant forward hedging sales at these levels, which should cap the surge for now.
–Friday ended with a modest decline in yields, with tens down almost 2 bps to 182.  Once again, besides EDM6/EDM7, the next ten one-year eurodollar calendars are between 25 and 26.5.  Linear.  The delegate count is pretty clear: one hike.
–One other note, which may or may not be of importance.  ZeroHedge ran a piece saying that Chas Schwab, due to new regulations, is sweeping non-individual accounts from money mkt funds into US treasury govt money market vehicles.  Here’s the link.  http://www.zerohedge.com/news/2016-05-01/schwab-quietly-forcing-cash-out-money-market-funds-and-treasurys
The outcome could be a bit of pressure on libor vs short term bills.

Posted on May 2, 2016 at 6:30 am by alexmanzara · Permalink
In: Eurodollar Options

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