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About time for discussion on the impending bond market collapse that the Chinese have finally allowed to start happening.

Beginning with several Chinese government owned aaa-rating companies defaulting on their bonds. 

  • State-owned miner Yongcheng Coal and Electricity defaulted on a 1 billion yuan ($151.9million) bond last week
  • Government-backed chipmaker Tsinghua Unigroup, which missed payment after failing to extend its deadline for repayment,
  • State-owned Huachen Automotive Group — a Chinese joint venture partner of BMW.
  • China Evergrande also came under the spotlight for reportedly having cash crunch issues.

https://www.cnbc.com/2020/11/20/china-bond-defaults-by-state-owned-firms-spark-concerns.html

 

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When people refer to bonds on here they are normally talking government not coporate, although a bond from a state backed company might be a (goverment)^2 bond. Or something.

Feels more like a political issue than an economic one. Probably the government wanting to send a signal that these should not be priced the same as effective government debt and the market value needs to properly reflect that.

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https://news.sky.com/story/china-auction-buys-it-membership-of-an-elite-financial-club-12136594

 

The Chinese finance ministry was looking to raise €4bn (£3.5bn) by selling a mixture of five, ten and 15-year bonds.

Extraordinarily, the auction attracted €18bn (£16bn) worth of orders, enabling China to sell the five-year bonds with a yield of -0.152%.

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https://news.sky.com/story/china-auction-buys-it-membership-of-an-elite-financial-club-12136594

 

The Chinese finance ministry was looking to raise €4bn (£3.5bn) by selling a mixture of five, ten and 15-year bonds.

Extraordinarily, the auction attracted €18bn (£16bn) worth of orders, enabling China to sell the five-year bonds with a yield of -0.152%.

Who buys these bonds? Can't they just keep the cash or the money in their account yielding 0%?

Also why do centeral banks set negative interest rates rather than simply stop accepting deposits, as this would put cash into the economy?

Edited by Wurzel Of Highbridge
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People who are more concerned with return of the money than return on the money.

So, I guess if you were a pension fund and held funds in a bank, every now and again you'd transfer some funds into the centeral bank to mitigate risk from the bank you have your account with.

If you were a bank though, you would just keep the cash in your own bank at 0%. That is unless you were worried about your own banks solvency? 

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So, I guess if you were a pension fund and held funds in a bank, every now and again you'd transfer some funds into the centeral bank to mitigate risk from the bank you have your account with.

If you were a bank though, you would just keep the cash in your own bank at 0%. That is unless you were worried about your own banks solvency? 

One fairly simplistic way of thinking of it is like gold.

If you order a billion pounds worth of gold, the "interest rate" on it is effectively negative. That's because you need somewhere to store it, and that storage area costs.

People still buy gold though. Because the other things gold offers as an investment are more important than the interest rate that they would get from alternative investments.

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One fairly simplistic way of thinking of it is like gold.

If you order a billion pounds worth of gold, the "interest rate" on it is effectively negative. That's because you need somewhere to store it, and that storage area costs.

People still buy gold though. Because the other things gold offers as an investment are more important than the interest rate that they would get from alternative investments.

Huge difference... one can’t be printed, while the other one has a surging supply.

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About time for discussion on the impending bond market collapse that the Chinese have finally allowed to start happening.

Beginning with several Chinese government owned aaa-rating companies defaulting on their bonds. 

  • State-owned miner Yongcheng Coal and Electricity defaulted on a 1 billion yuan ($151.9million) bond last week
  • Government-backed chipmaker Tsinghua Unigroup, which missed payment after failing to extend its deadline for repayment,
  • State-owned Huachen Automotive Group — a Chinese joint venture partner of BMW.
  • China Evergrande also came under the spotlight for reportedly having cash crunch issues.

https://www.cnbc.com/2020/11/20/china-bond-defaults-by-state-owned-firms-spark-concerns.html

 

The various economic models never allowed for China entering the WTO in 2000.

The developed world has had 20 years of China exporting disinflation.

We are entering a period where China is going to start exporting inflation, as well as a large number of PITA politics.



 

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So, I guess if you were a pension fund and held funds in a bank, every now and again you'd transfer some funds into the centeral bank to mitigate risk from the bank you have your account with.

If you were a bank though, you would just keep the cash in your own bank at 0%. That is unless you were worried about your own banks solvency? 

Problem is, when there are negative interest rates, if you are a corporation, they charge you to keep money in the bank, it’s not yielding 0% there.

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Problem is, when there are negative interest rates, if you are a corporation, they charge you to keep money in the bank, it’s not yielding 0% there.

Bonds can and are defaulted on.

Then again, fiat currencies are often revalued, if they aren't straight up confiscated.

I would hold neither.

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