| Welcome to the Weekly Fix, the newsletter where bonds are never boring. I'm Bloomberg's chief rates correspondent, Garfield Reynolds. Note to readers: Starting this week, The Weekly Fix will only be available for paid subscribers of Bloomberg.com. As a loyal reader of this newsletter, you'll keep receiving it for free. Questions can be directed to contactus@bloombergsupport.com. Global bonds gyrated all week, often without any obvious fundamental trigger, as investors grappled with a world of contradictions. Record short bets sparked by stubborn inflation collided with the attraction of the highest yields for decades, turning Treasuries into more of a risk asset than safety play. The nub of the problem for investors is that those historically high yields are sending a doubly bullish signal for bonds. While the carry — the interest payments they get just from holding the debt — is the best its been for more than a decade, there's also the lure of potential capital gains because surely, surely, the economy can't cope with the rapid run-up in yields! The result was yet another wild week, even as conflict in the Middle East boosted the need for market havens. Bill Ackman and Bill Gross sparked a rapid rally at the start of the week when they dropped their bearish stances. However, that set the stage for a fresh tumble — prompting talk of Treasuries as a "falling knife" — after a poor five-year auction reminded investors of concerns about burgeoning supply. Fresh tests of the big round scary level of 5% were a key dynamic, with BlackRock Inc., State Street Corp. and Andromeda Capital Management among those highlighting it as a likely ceiling. Vanguard Group Inc. channeled its inner pop star by telling investors to "shake it off" and buy back into fixed income following this summer's brutal rout. Treasury Secretary Janet Yellen said the surge in longer-term bond yields in recent months is a reflection of a strong US economy, not the jump in government borrowing driven by a widening fiscal deficit. The Federal Reserve is likely rather less concerned about 5% yields than the bond market is, with officials seeing the continued run-up in borrowing costs as a feature of their bid to tame inflation rather than a drawback, as tighter financial conditions help cool economic growth. That's even as the worst selloff of longer-term Treasuries in more than four decades puts a spotlight on the central bank's own potential role in the turmoil as it switches from a buyer of bonds to a seller. The volatility in Treasuries weighed on assets across markets. US banks put a planned investment-grade bond-selling spree more or less on ice. Stocks also sank, helping slam the brakes on an expected rebound in equity fundraising. Others worried that the surge in US mortgage rates toward 8% was crimping demand for housing. Starwood Capital Group's Barry Sternlicht meantime said the Fed will be forced to halt rate hikes as the pace of tightening has made it too costly for the government to pay the interest on its debt pile. Emerging-market bonds outperformed, but they may be pricing themselves out of consideration for a number of investors. Yields on them in their own currencies have fallen below US Treasuries, causing the classic "risk premium" expected in emerging markets to all but vanish. That made Lazard Asset Management wary enough to keep allocations to the asset class "unusually low." The spike in US yields also sent the Japanese yen tumbling past the 150 per dollar mark and close to its weakest level since 1990, putting currency traders on intervention watch. The Bank of Japan, meantime, had to wade into its own bond market with a burst of fresh purchases. That adds to pressure for the yen to slide and also complicates the outlook for next week's central bank meeting. China's property market woes continue to blight authorities' efforts to nurture green shoots for the world's second-largest economy. Country Garden Holdings Co. failed to pay interest on a dollar bond, triggering payouts on credit-default swaps. The turmoil engulfed China Vanke Co. as its dollar bonds also plunged. There's also the risk that $71 billion of South Korean structured products will face losses thanks to the fallout.  A Country Garden residential project in Yangzhou, in September. Bloomberg China's growth could slow right down to 2.9% in 2024 if the real-estate meltdown deepens, according to S&P Global Ratings. The default at Country Garden, one of China's biggest developers, is intensifying the pain for struggling homebuyers, workers and investors, just when the economy most needs a boost. Certainly concerns about the crisis are threatening to overwhelm Xi Jinping's strenuous efforts to stimulate the economy. Money markets signaled more may be needed, with a one-year gauge of bank funding costs shooting above the level the People's Bank of China lends at, an unusual occurrence since 2019 that points at scarce liquidity in the system. Catch up with what's moving China's markets — in Chinese — with Bloomberg's new, free daily newsletter and podcast. Sign up for 彭博财经早茶 here. - JPMorgan veterans start hedge fund targeting Japan rates market
- Billionaire Drahi cornered by debt mountain, corruption scandal
- Climate changes force fund managers to update bond-risk models
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