Bond Markets Start Intimidating Investors

Key News

Asian equities were risk-off due to President Trump’s budget, which, according to the WSJ, is expected to increase the deficit by $2.7 trillion over the next decade.

The US 30 Treasury bond yield has risen from a September 2024 low of 3.92% to 5.14% this morning, while the Japanese Treasury bond yield has risen from 2% to 2.97% over the same period. James Carville’s reincarnation quote as the bond market comes to mind: “You can intimidate everybody.” Based on my recent travels to Europe and Asia, one shouldn’t expect much sympathy or appetite for US investments from foreign investors following the recent trade “negotiations”. Maybe the increased volatility could lead to a desire to resolve trade issues.

It was very quiet except for the US-driven macro narrative, after a poor US trading day yesterday, which weighed on US-listed China stocks, as risk off is risk off. Hong Kong had a poor session as growth stocks favored by investors took the brunt of market action. XPeng +5.8% after strong results and guidance yesterday though CATL -2.25% despite the Hong Kong listing being fast-tracked for MSCI inclusion. Xiaomi was off -2.3% despite founder Jun Lei’s comments on the coming July launch of their SUV model YU7 in addition to announcing their use of Qualcomm’s Snapdragon 8 chips. Li Auto -2.77% lowered its 2025 production target to 640,000 from 700,000. Hong Kong banks were a safe haven though it was simply an off day despite Mainland investors buying $495 million worth of Hong Kong-listed stocks via Southbound Stock Connect.

Mainland China was also weak though indices were not off as much as Hong Kong. Mainland banks also held up though the National Team’s favorite ETFs had a light volumes. The Shanghai government announced expansion of its subsidy programs as the top down directive to expand from auto/EV/hybrid and home appliances to electronics gets implemented locally. The State Council hosted several agencies in a press conference on financial policies to support the science and technology sectors following yesterday’s release. Again quiet so we’ll keep things concise!

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Last Night’s Performance

Last Night’s Exchange Rates, Prices, & Yields

• CNY per USD 7.20 versus 7.20 yesterday
• CNY per EUR 8.13 versus 8.16 yesterday
• Yield on 10-Year Government Bond 1.72% versus 1.71% yesterday
• Yield on 10-Year China Development Bank Bond 1.71% versus 1.71% yesterday
• Copper Price -0.23%
• Steel Price -0.10%