- Smaller Chinese IPOs in very traditional brick-and-mortar type businesses are looking to list again in the U.S. under the watchful eye of regulators on both sides of the world
- Chinese listings are unlikely to do well in the immediate term because of investor wariness over Beijing’s often rapid and apparently arbitrary policy moves
When the U.S. Federal Reserve talks about things like balance sheet “runoff” and policy tightening, it doesn’t just affect investors holding on to U.S. Treasuries, it affects the U.S. government as well.
As demand for Treasuries declines, because the Fed doesn’t want to buy as many of them as it used to, the prices of bonds decrease and the yields go up so that investors can be persuaded to pick them up.
But it also makes things more challenging for governments which issue these bonds.
In a country as heavily indebted as America, the surety that its sovereign debt will find buyers has allowed Washington a degree of profligacy that would otherwise have sent most countries into financial perdition.
But the same can’t be said for the sovereign bonds of many other countries, whose national currencies don’t have the reserve status of the dollar.
Yields, which move inversely to prices, have climbed in the Eurozone, the United Kingdom, Canada and Brazil, ahead of U.S. inflation data due out on Thursday.
Strong employment numbers in the U.S. for January, despite the Omicron variant managing expectations are also raising bets that the Fed has the necessary cover to tighten more aggressively to deal with the highest levels of inflation in four decades.
Markets have currently priced in over five 0.25% rate hikes from the Fed by December and bets are increasing that the U.S. economy is resilient enough to take it.
But the Eurozone is a different kettle of fish altogether and signs that the European Central Bank is more open to a hawkish pivot has already send the yields of southern European sovereign bonds soaring.
Italy’s 10-year bond yield has already risen to 1.84%, and borrowing costs for some of the European Union’s less wealthy members could pressure the ECB to ensure it keeps intervening to shore up the euro and ensure the region’s cohesiveness.
Yields in Japan are also reaching levels where the Bank of Japan may be forced to intervene to bring down borrowing costs for the government as well
Across the world, central bankers are caught between a rock and a hard place – stay the course on rates and quantitative easing to ensure that government borrowing costs remain reasonable and risk allowing inflation to take off, or intervene and potentially cause a ruinous market correction or worse, a recession.
