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Look Out Below, Chinese Ted Spread Edition

Posted By Barry Ritholtz On February 27, 2014 @ 8:30 am In Credit,Markets,Trading | Comments Disabled

Equity futures are under pressure [1] this morning as concerns about a shadow-banking credit crunch in China increase. A Chinese credit-market risk gauge [2] is hitting new highs amid growing concerns that leverage and credit risk have reached unsustainable levels.

Observers are comparing this to the widening in the Ted spread [3] — a measure of risk in certain eurodollar securities compared with Treasuries — in 2007, which turned out to be a key precursor to the financial crisis. The comparison to the U.S. financial crisis was first observed [4] last June, if not earlier. Goldman Sachs [5] Group Inc. has noted that China’s “bond market has grown from virtually nonexistent into one of the world’s largest.” As of the end of 2013, local government debt had “swollen [6] to 17.9 trillion yuan ($2.95 trillion), underscoring risks to the financial system.”

Continues here [7]

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URL to article: http://www.ritholtz.com/blog/2014/02/look-out-below-chinese-ted-spread-edition/

URLs in this post:

[1] under pressure: http://www.bloomberg.com/markets/stocks/futures/

[2] credit-market risk gauge: http://www.bloomberg.com/news/2014-02-26/crisis-gauge-rises-to-record-high-as-swaps-avoided.html

[3] widening in the Ted spread: http://krugman.blogs.nytimes.com/2014/02/26/red-spreads/

[4] first observed: http://www.zerohedge.com/news/2013-06-19/china-interbank-market-freezes-overnight-repo-explodes-25

[5] Goldman Sachs: http://www.goldmansachs.com/gsam/docs/fundsgeneral/general_education/economic_and_market_perspectives/china_bond_market_faq.pdf

[6] swollen: http://www.bloomberg.com/news/2013-12-30/china-s-local-debt-swells-to-17-9-trillion-yuan-in-audit.html

[7] Continues here: http://www.bloombergview.com/articles/2014-02-27/do-china-s-risk-signals-point-to-a-meltdown

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