There is just one way to describe the plunge in bond yields overnight and the events behind it: the global race to the currency bottom is rapidly accelerating in its final lap with a global deflationary Ice Age (take a bow Albert Edwards) waiting on the other side.
The main event, of course, was the latest yuan fixing with the PBOC showing a clear sense of humor when it set the currency at 6.9996, laughably not to be confused with 7.0000 (for at least another 24 hours that is), but just a fraction of a percent away from the critical threshold, and weaker than the 6.9977 expected. The result was a resumption in the offshore yuan selloff, a hit to US equity futures and a drop in Treasury yields. Of course, once the PBOC does finally fix the yuan on the wrong side of 7, all bets are off and watch as the CNH crashes… as far as 7.70 according to SocGen, especially once Trump hikes tariffs to 25%.
But there was much more in today’s iteration of the global race to the currency bottom, when first New Zealand, then India and finally Thailand shocked investors by being far more dovish than analysts expected. Indeed, the three Asian central banks delivered surprise interest-rate decisions on Wednesday as central bankers not only took aggressive action to counter a worsening global economy, but are now frontrunning each other – and the Fed – in doing so.
As noted last night, New Zealand’s central bank on Wednesday stunned investors by dropping its benchmark rate by 50 basis points, double the expected reduction and sending the kiwi tumbling. Thailand also surprised all but two in a survey of economists, cutting by 25 basis points. Finally, India’s central bank lowered its rate by an unconventional 35 basis points.
…click on the above link to read the rest of the article…