Is A Chinese Recession Imminent? Yield Curve Inverts For First Time Ever

Tyler Durden's picture

While China growth has been slowing, and monetary conditions tightening, few (if any) have predicted any prolonged deflation (let alone a recession), yet overnight - for the first time ever - the $1.7 trillion Chinese bond market inverted, flashing a warning signal to the world that something is wrong.

Early on Thursday, the five-year yield rose to 3.71%, breaking above the 10-year yield for the first time since records began - even though the latter, at 3.68%, was near a 25-month high.

Some of the overnight weakness in the 10Y yield was eased by reports that PBOC would offer some Medium-Term Loans.

Of course it's not just bonds that are getting dumped...


But, as The Wall Street Journal writes, such a “yield-curve inversion” defies normal market logic that bonds requiring a longer commitment should compensate investors with a higher return. It usually reflects investor pessimism about a country’s long-term growth and inflation prospects.

Perplexed traders and analysts offered up many excuses...

“Many of us are scratching our heads for an explanation because this kind of curve inversion is absolutely not normal,” said Wang Ming, a partner at Shanghai Yaozhi Asset Management Co., a bond fund that manages 2 billion yuan ($289.66 million) in assets.


“The inversion is a form of mispricing in the bond market,” said Liu Dongliang, senior analyst at China Merchants Bank . “The fact that no one is taking the bargain despite the higher yield on the five-year bond just shows how depressed investors’ mood is.”


“It’s really difficult to predict when the selloff or such anomalies will end because China’s bond market is reacting to the regulatory crackdown only and is no longer reflecting economic fundamentals,” said China Merchants Bank’s Mr. Liu.

But of course, the reality is - without massive and contonued credit creation, there are very large questions about just how 'dynamic' Chinese growth could be and while technical flows are certainly part of the reasoning for 5Y yields rising, the question is, why wouldn't the rest of the world pile in to 'reach for yield'... unless the fundamentals really did have them worried?

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Peacefulwarrior's picture

Doesn't this reflect the fear of a real Government insolvency issue and an acceleration of the stampede from Public to private sector?

AltRight Girl's picture

Is all good when the day ends well.

Not so much for some unicorns, though.

1999 Called, They Wanted Their Stock Bubble Back

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Sonny Brakes's picture

Oh, God, is this another one of those stories where nothing is as it seems and there's no creampie for dessert?

Cognitive Dissonance's picture




<What was the question again?>

SeuMadruga's picture

Yeah, I also got totally lost with that avatar right up there...

syzygysus's picture

You get a Yellen creampie.

Fake Trump's picture

Actually her creampie is nice though it is big.

RawPawg's picture


With All That Gold

Surely you Jest 

FrankieGoesToHollywood's picture

It doesn't defy logic. It is normal "markets" when central bank bond buying and selling is going on. CB criteria for manipulating is not always logical.

Zepper's picture

Shut up nothing is wrong!!!!!


According to the Chinese government.

offwirenews's picture

Not if the government says there's no recession. Who cares what the data says lol.

sinbad2's picture

China is going to deliberately crash its economy.

Why, you work it out?

kenny500c's picture

Short term money is too tight, no reason for a recession, buy Greely Auto.

Insurrexion's picture

Since when does 20th Century western economics apply to China?

Do you really believe any economic statistic that comes from that country?

That said, do you really believe any economic statistic that comes from the United States, Japan, or the Eurozone?

Bottom line: When you print unlimited money from thin air as all major countries do, 20th Century economics does not apply.


The last fucking 9 years are proof.

SeuMadruga's picture

At this mind-boggling, "out-of-air" money creation pace, guess we'll soon run out of stuff to breathe...

Ricki13th's picture

China credit boosted economy is not that different from USA. At least China was smart enough to horde gold and setup an alliance with Russia, Iran, etc. So they will be able to recover. USA will be all alone with mountains of fiat paper that no one wants.

Crassius's picture

Is a communist inspired totalitarian dictatorship oing to implode?

Of course, the only question is when to short it..... need to see leadership blood spilled by the population first.  It will com sooner or later.... it always does.

land_of_the_few's picture

Apart from when it doesn't, historically.

DaBears's picture

Evil Round eye buy Mao-noploy Yuan money now! Need more real estate in Vancouver for escape from lynch mob.