Ed’s Daily Notes for February 19th   3 comments

Bloomberg: China Trust Defaults Seen as Coal Maturities Quadruple

It seems we might be getting a “canary in a coal mine” for the next black swan event:

The number of trust products tied to China’s flagging coal miners maturing this year will almost quadruple, as rising borrowing costs for the industry make it harder to avoid defaults.

The number of redemptions of such products sold to multiple investors will jump to 19 this year from five in 2013, according to Cnbenefit, a consulting firm based in the southwest city of Chengdu. The yield premium on the June 2014 securities of China Shenhua Energy Co., the country’s largest coal producer, over similar-maturity government notes surged to a record 231 basis points on Feb. 8. That compares with 152 basis points for energy debt globally, Bank of America Merrill Lynch indexes show.

…As default concerns escalate, the cost of insuring China’s sovereign debt against non-payment is rising. The nation’s credit-default swaps have increased 6.5 basis points in 2014 to 86.5. The yuan fell today to the lowest this year at 6.0764 per dollar.

How many times do we have to play this game? Investors hop into some “can’t miss” sector, which ends up imploding and hurting all the investors. The only difference between now and the tulips or the “dot.com” bubble is the governments are now riding to the rescue. In the case of the Chinese coal miners, it will be the Chinese government bailing out these securities. What impact, if any, this will have on world markets remains to be seen.

Zero Hedge: China Sold Second-Largest Amount Ever Of US Treasurys In December: And Guess Who Comes To The Rescue

China dumps $48 billion in U.S. treasuries in December and Japan dumps another $4 billion, guess who buys almost $40 billion in U.S. treasuries? Belgium. Thanks Plas!


Posted February 19, 2014 by edmcgon in Market Analysis, News

3 responses to “Ed’s Daily Notes for February 19th

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  1. I read the article yesterday too, and my mind kept asking “where do they got the money?” like we haven’t got enough debt of our own yet. It made me think we actually do can print our own money, or maybe you accepted our monopoly-money. But then again, we have pretty large saving deposits (highest saving rate in the world if I’m correct)… maybe we can do some magic trics with it 🙂

  2. where’s bitcoin when you need them?

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