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Some more here on the sensitivity of Australian markets to Chinese liquidity with a chart of the CBA CDS price (that is the cost of insuring long term the bank’s long term bonds):
Obviously the medium term past has been kind to the major banks. Although I would argue that 80bps is still high for a reputedly stable behemoth. Anyway, the big spike on the chart mid last year was during China’s liquidity crisis (as well as the taper tantrum in bond markets) and you can see that yesterday the bank’s CDS popped out of its recent range as well even as broader bonds were bid (though is obviously far from alarmed).
It’s something to keep in mind if China does pursue its reform agenda. Bank funding costs will rise, probably substantially.
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About the author
David Llewellyn-Smith is Chief Strategist at the MB Fund and MB Super. David is the founding publisher and editor of MacroBusiness and was the founding publisher and global economy editor of The Diplomat, the Asia Pacific's leading geo-politics and economics portal.
He is also a former gold trader and economic commentator at The Sydney Morning Herald, The Age, the ABC and Business Spectator. He is the co-author of The Great Crash of 2008 with Ross Garnaut and was the editor of the second Garnaut Climate Change Review.
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