A couple of under-reported bombshells published at FT

Hedge funds under scrutiny over role in March bond market ructions

grapic image of towering debt skyscraper reaching for the stars“Although foreign investors — primarily central banks — were among the biggest sellers, ditching almost $300bn of Treasury bonds and bills in March, the market’s ‘dysfunction’ was ‘exacerbated’ by the unwinding of a popular hedge fund trade that takes advantage of the difference between the prices of Treasury bonds and futures, which led to another $90bn of US government debt being dumped, according to the FSB.”

China SOEs nervousness derails $2.4bn in planned bond sales

“At least 20 Chinese companies have suspended planned bond sales worth Rmb15.5bn ($2.4bn) over the past week, as the high-profile defaults of three state-owned enterprises and questions about the solvency of a fourth unnerved investors in the world’s second-largest bond market.”

USAGOLD note 1:  Considering Jerome Powell took the vow of transparency when he became the chief operating officer at America’s central bank, it is a bit disconcerting to find out eight months later that what was put off as an overnight repo market liquidity problem was more akin, according to this report, to another near financial meltdown.

USAGOLD note 2: As for the report on China, we have posted a number of articles on the risks posed globally by zombie companies over the past several months. In China, it seems, the problem is rapidly coming to a head. Companies are withdrawing bond offers and investors are dumping their holdings of some troubled companies.

USAGOLD note 3: As we might have anticipated, those at the center of this minor earthquake (at present) are calling for government bailouts. ……… All of this serves as a reminder that we live in financially perilous times and that “anything can happen,” as Softbank’s Masayoshi Son recently reminded us. Preparation is both prudent and essential.

Repost from 11-18-2020

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