24.09.2021
Round trip
The Evergrande fall-out at the start of the week impacted global financial markets via three channels. Wider sovereign Chinese CDS, higher risk aversion & wider credit spreads.
Those three prompted a sharp re-pricing across asset classes. Two of the three have now completed a round trip. The charts below show all three in z-score terms.
After a sharp 2 standard deviation jump, VIX is once again running below long term trend. Similarly, after a brief spike wider, credit spreads have reverted below trend.
Those three prompted a sharp re-pricing across asset classes. Two of the three have now completed a round trip. The charts below show all three in z-score terms.
After a sharp 2 standard deviation jump, VIX is once again running below long term trend. Similarly, after a brief spike wider, credit spreads have reverted below trend.
China CDS are narrowing but at a slower pace. Nevertheless, taken altogether, it suggests the market, for now, is confident Evergrande does not pose broader systemic risk.
That doesn’t negate fears about the potential drag on Chinese economic growth. Tracking sensitivity to these different macro variables as regimes shift & factor leadership changes will be vital into year-end.
