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CHINA ENTERS THE GOVERNMENT SECURITIES MARKET, WHILE CENTRAL BANKS BET ON THE RECOVERY….

Apparently secondary news, but in practice very important, can change the equilibrium in the international government bond markets. Prior to the release of the FTSE Russell's annual valuation of its global government bond index, insiders believe that Chinese government bonds are very likely to be added to the global index, with the effect of increasing foreign debt holdings from 6 to 7% points. "We see an 80% chance of Chinese government bonds being included in the WGBI," said Liu Jie, head of strategy at Standard Chartered China.
In an interim evaluation in April, FTSE Russell maintained his views from last September's evaluation and kept China on the checklist for possible inclusion in the WGBI. At the same time, FTSE Russell confirmed the country's steps to improve accessibility and liquidity, which reinforced the possibility of inclusion this time around. The decision will be confirmed on 24 September.

. Goldman Sachs estimates that the inclusion would add $ 140 billion in inflows to the Chinese bond market . There is likely to be a 12-month grace period, so the immediate flow impact would be limited, even if FTSE decides in favor of China this week. What does this mean for us and for Western markets in general? that is added another competitor on the private market of government bonds which, among other things, has enormous power to control the currency and interest paid and absolutely not comparable with that of our institutions. The government (ie the Communist Party) controls the PBOC, and therefore has its hands free in determining the yields and inflationary objectives. We, on the other hand, linked to the ECB, risk playing with one hand tied behind our back. The move risks being as devastating for us as Beijing's entry into the WTO, if we do not take the appropriate countermeasures . Meanwhile, Western ownership of Chinese debt securities is increasing, always hoping that the CCP will not decide one day a nice default.

Meanwhile, the Fed and the BOJ have teamed up with other major central banks, including the ECB, to stand still as the global economy recovers, or at least it should. The Fed has signaled that rates will remain close to zero until at least 2023, but has slowed part of the QE in its purchase program, while the ECB has not announced an expected enlargement of the PEPP. Only the Bank of England has countered the trend, giving the strongest signal so far that it could wade into negative interest rates also to counter a possibly “Hard” Brexit.

In addition to the BOE, other central banks are following in the footsteps of China, which is considered, rightly or wrongly, as the global indicator of post-Covid-19 economic performance, given its leading nature. The political stance of the PBOC had shifted to a neutral stance since May, thus leading to a lowering and a sale of the bonds. On Monday, the prime rate of the benchmark loan is expected to remain stable for a fifth month.

Without further monetary support, risky assets are now somewhat left to their fate. It is worth noting that the Chinese stock market has been stagnant since July. The lack of fiscal stimulus in the United States linked to the elections only increases uncertainty, even after the problems with the passage of the temporary agreement on the contributions to the employees for covid 19.

However, the fact that China is followed means that


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The article CHINA ENTERS THE GOVERNMENT SECURITIES MARKET, WHILE CENTRAL BANKS BET ON THE RECOVERY…. comes from ScenariEconomici.it .


This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/la-cina-entra-nel-mercato-dei-titoli-di-stato-mentre-le-banche-centrali-scommettono-sulla-ripresa/ on Mon, 21 Sep 2020 15:02:30 +0000.