There are two different worlds today in terms of the behavior of government bonds: the U.S., the UK and orther developed nations where they’re fighting inflation and yields are going up, perhaps showing the beggining of a worrisome trend, and China, where yields are sinking to perhaps an even more dangerous one (see chart below), as it appears to reveal a much deeper economic problem than their developed counterparts. We don’t know if China is entering a recession, which would make economists scratch their heads as, offically, their economy is still growing at 4-5%. But both the bond market and the equity market are flashing clear signals of trouble, which will likely force the PBoC and the government to act and announce a meaningful aid package. The interesting and twisted corollary is that, if stimuli are announced, it might be inflationary for China, but also for the rest of the world, which is already fighting inflation.
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