From the Desk of Ian Culley @IanCulley
Yields are rising worldwide.
US treasuries continue to fall after a brief pullback in price.
Now, Chinese government bonds are pressing toward fresh lows.
Sovereign debt epitomizes downside risk. And Chinese bonds are on the cusp of a significant breakdown – a breakdown that spells more trouble for global bond investors.
Check out the VanEck China Bond ETF $CBON:
CBON aims to track the ChinaBond China High Quality Index (debt mainly issued by the People’s Bank of China). And like US treasuries, Chinese government bonds are flirting with fresh multi-year lows.
I have been adamant regarding a bearish bias toward US bonds. (In fact, I think they’re an excellent short.)
A similar outlook extends to Chinese government-issued debt if and when CBON decisively closes below 21.50.
One important note: I don’t want to short this ETF. I only view the CBON chart as information. Chinese bonds are a no-touch!
Government debt issued by the second-largest economy in the world (China) is on the verge of confirming further weakness in the US bond market.
It’s anyone’s guess whether continued selling in CBON or the US 10-year T-note will materialize. Tracking our levels is the best we can do.
Yet critical former support levels for sovereign debt appear flimsy no matter where you look – the US, Europe, and China.
These markets could provide stellar shorting opportunities. (They certainly did last year!)
More importantly, the price charts have yet to indicate a buy signal for these assets – stateside or overseas.
Bonds will continue to represent downside risk until price proves otherwise.
Stay tuned!
Countdown to FOMC
The market is pricing in a pause in the hiking cycle through Q1 of next year.
Here are the target rate probabilities based on fed funds futures:
Click the table to enlarge the view.
This data is from the CME FedWatch Tool as of September 7, 2023.
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