The latest news out of China is that one of its biggest trust firms, Zhongrong International, has missed payments on dozens of investment products since late last month. That is raising further questions on financial sector troubles in the country, amid the continuously worsening property sector situation.
For some context, Zhongrong International is owned by Zhongzhi Enterprise, whose name has surfaced earlier last week as suffering from a liquidity crisis. The latter has roughly ¥1 trillion worth of assets under management. And this continues to spread the unease regarding China's financial sector after having seen Country Garden suspend its onshore bond trading on Monday here.
The big question now is whether all of this is a sign that the dominoes are starting to fall in China's shadow banking sector. Beijing has worked ever so hard to clamp down on the risks associated but they can only do so much when trying to have to balance out rescuing the economy at the same time.
That seems to be the biggest worry right now and perhaps bond traders are reacting to that. 10-year yields in China are down to their lowest since the early days of the pandemic, though also no thanks to the rate cuts yesterday here. Elsewhere, 10-year Treasury yields are now down nearly 5 bps on the day to 4.173% and undoing the advance from yesterday.
If the bid in bonds today has more to do with the above, then we might do a more risk-off wave to come. Keep in mind the old adage that the bond market is always right. And if so, we might just see broader market sentiment turn some time this week just to keep up.
