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De-leveraging in China kicked off this Week

They are trying to thread a very fine needle in China right now, credit risk is surging to two-year highs.

– After China’s 19th Congress meeting of political leaders in October – we’re seeing sweeping regulations focused on curbing financial risk.  New rules are appearing, many announced over the last week.   Most of the new restrictions cover China’s $15T asset management products landscape.  A colossal deleveraging is in the works.

– PBOC (China’s Central Bank)  is driving the bus through their Financial Stability Board.

Credit Risk on the Rise in China

2007-2017

This week’s fears pushed China government bond yields to a 3-year high, taking U.S.  two year Treasury bond yields north with them.

• Very quietly, late this week the PBOC launched a $50B lifeline into their grossly leveraged banking system, the natives are growing more restless by the day.  This was the largest injection of emergency cash in the last year.

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Something Big is Brewing in the Bond Market

iShares 20+ Year Treasury Bond ETF seeks to track the investment results of an index composed of U.S. Treasury bonds with remaining maturities greater than twenty years.  Over the last decade, wedge breaks in the technical chart pattern of the TLT have led to large moves in interest rates.  Today. an important wedge is near a breach again, a true Bull – Bear battleground is forming (middle right above).