Are Chinese Stocks Signaling Yet Lower Lows In U.S. Interest Rates?

What do Chinese equities have to do with U.S. interest rates?  Perhaps more than one would think.  This is a multi-year chart of the Shanghai Composite (stock) Index:



Anyone who has a passing familiarity with what’s happened to U.S. interest rates the last several years can see there is a close correlation between the two, both directionally and in the extent of the two data sets (LINK).

There is a good reason why these may correlate.  China has an export-dependent economy.  Weakness or strength in its major export markets would likely be reflected in Chinese share prices.  That same weakness, especially if it involved the U.S. economy, would also tend to be reflected in lower Treasury bond yields.

Here’s the news out of Chinese stocks.  

Quietly to us here in the U.S., as “Analyst” reports in his post that shows the above graph:

Despite improving economic data (which are not totally consistent with each other anyway), Chinese equities just do not care. Shanghai Composite closed today below 2000 for the first time since 2009. That is a post-crisis low.

The U.S. 30 year Treasury bond bottomed at 2.48% in December 2008, following the Lehman panic and the institution of the Fed’s zero interest rate policy (ZIRP).  It then has gyrated with a downtrend bias and several months ago, reached and marginally breached that level.  Then, after rising to yet another lower interim high in yield, it has turned down and at least based on moving averages, it is in pretty good technical position.

Futures markets positioning suggests that speculators have started pushing up the prices of Treasury bonds (i.e., pushing yields down).  The last time they did this, as I read the data, was spring-summer of 2011.  They were correct then, (as was I, being one of them at the time).

The amazing Treasury bull market may thunder on to set even more records soon.








3 comments to Are Chinese Stocks Signaling Yet Lower Lows In U.S. Interest Rates?

  • El Gabo, you said thank you to me on my last post. I return said “gracias” to you now.

  • GreenSharts

    Okay, I think what you are trying to say is that investors gauge the prospects for the Chinese economy as dim, and its confirmed by lower treasury yields.

    China buys Dollars and Sells Yuan to get their currency competitive in export markets. This is part of the reason that they have massive holdings of American Debt.

    Now looking around the world, we see weakness in the USA and EU Zone… China’s major export markets.

    If China were a rational player… they would want to transition away from being export dependent to being demand self sufficient. Not a quick process but how? Look at the size of one of their close neighbor’s army (North Korea) and you will quite clearly see a way.

    I would expect them to invest heavily into their military (building jobs and wages) and as such own/buy less treasury bonds.


    Now go find some solidly audited China military stocks and get long and strong baby.