Sunday, December 18, 2016

Interest Rates Are Rising Because
Of China, Not Inflation
Lance Roberts: "The selling of Treasuries by China has been the primary culprit in the spike in interest rates in recent months and is likely quickly approaching its nadir. As I will discuss in a moment with respect to the trade deficit, there is little evidence of a sustainable rise in inflationary pressures. The current push has come from a temporary restocking cycle following a very weak first half of the year economically speaking, and pressures from higher oil, health care and rental prices. As noted by Horseman Capital in their recent note to investors (Via Zerohedge):
'Asia is the source of most global demand for commodities, while also a huge supplier of goods into the US. Asian currencies have followed US bond yields higher and lower since the 1990s, as well as followed commodity prices higher and lower over that time. There has been one time when this relationship has broken down. In 2007 and 2008.
Today we are seeing the reverse, I believe. The Chinese financial system is showing signs of stress. Corporate bond yields are rising, the Chinese Yuan is weakening, and outflows are continuing. In my view, the Trump election has made a large Chinese devaluation more likely. Mainland Chinese investors are desperately trying to get out of the Yuan, and the People’s Bank of China is trying to defend the value of the Yuan. They are doing this by selling treasuries.'"
LINK HERE to the essay

1 comment:

Anonymous said...

When interest rtes are almost zero is it any surprise that the move seems to be up ?