WEBVTT - Evergrande Latest, Treasury Refunding

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<v Speaker 1>Good morning. I'm Brian Curtiz.

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<v Speaker 2>And I'm Doug Krisner. Here are the stories we're following today.

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<v Speaker 1>The US is trying to find the right line to

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<v Speaker 1>walk in response to the deadly drone attack in Jordan.

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<v Speaker 1>At Baxter has the story and more from San Francisco.

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<v Speaker 3>Ed.

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<v Speaker 4>Yeah, that's right, Brian. At the same time, it is

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<v Speaker 4>saying iron is behind the attacks for sure. Now, NSC

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<v Speaker 4>official John Kirby says the US response will be at

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<v Speaker 4>the right time, on its timeline.

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<v Speaker 5>We'll do that on our schedule, in our time, and

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<v Speaker 5>we'll do it in the manner of the President's choosing

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<v Speaker 5>as commander in chief. We'll also do it fully cognizant

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<v Speaker 5>of the fact that these groups backed by Teyran have

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<v Speaker 5>just taken the lives of American troops.

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<v Speaker 4>Now, Defense Secretary Lloyd Austin is a bit stronger in

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<v Speaker 4>his response.

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<v Speaker 6>President and I will not tolerate attack on US forces

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<v Speaker 6>and we will take all necessary actions to defend the US.

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<v Speaker 4>So what are the options, Well, Bloomberg's Jennifer Welsh.

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<v Speaker 7>Everything in terms of military tactics, from mer surgical strike,

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<v Speaker 7>cyber attacks to more traditional option, and then in terms

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<v Speaker 7>of targets. There's the more espiratory option of actually striking

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<v Speaker 7>Iranian targets in irong to striking Iranian forces outside of

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<v Speaker 7>the country to Iranian proxies and the infrastructure that supports them.

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<v Speaker 4>So the US preliminary findings on how the defense systems

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<v Speaker 4>could have missed the incoming drone, well, they say that

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<v Speaker 4>it apparently flew directly behind a US drone that was

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<v Speaker 4>landing at the base, confusing the human and the digital defenders.

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<v Speaker 4>Is Ready Prime Minister Benjamin net Yahoo in Paris to

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<v Speaker 4>try to get a hostage return deal, says the meetings

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<v Speaker 4>were constructive, but that significant gaps remain. As office says

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<v Speaker 4>those differences will be discussed at additional meetings this week. Meanwhile,

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<v Speaker 4>Israel is saying that as many as as much as

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<v Speaker 4>ten percent of the UN relief agencies twelve thousand works

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<v Speaker 4>in Goza this un where members of Hamas or Palestinian

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<v Speaker 4>Islamic Jihad Senate negotiators continue to work on a border deal.

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<v Speaker 4>House Republican Greg Murphy on Bloomberg's balance of power says,

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<v Speaker 4>the answer really is pretty clear.

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<v Speaker 6>We have to go back to the stay in Mexico policy.

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<v Speaker 6>I mean, I think that was the star work of

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<v Speaker 6>where all this began. We had Central American countries that

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<v Speaker 6>had bought into this that they folks that seek asylum

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<v Speaker 6>in the country of entry rather than transgressing across all

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<v Speaker 6>of Central America.

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<v Speaker 4>Says the president has executive powers that he could use

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<v Speaker 4>to get it done. Egene Carroll says that she is

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<v Speaker 4>wanting to donate the award money that she wanted her

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<v Speaker 4>civil suit against Donald Trump. Donate it. On ABC with

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<v Speaker 4>George Stephanopoulos. She says that she does have a vague

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<v Speaker 4>plan to now, I like to.

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<v Speaker 3>Give the money to something Donald Trump hates if it

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<v Speaker 3>will cause him pay for me to give money to

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<v Speaker 3>certain certain things. That is mind well, perhaps fund for

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<v Speaker 3>the women who have been sexually assaulted by Donald Trump.

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<v Speaker 4>Trump's attorneys are, of course appealing that award. Meanwhile, Trump

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<v Speaker 4>is facing the pair of major legal verdicts that could

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<v Speaker 4>wipe out most, if not all, the cash that he

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<v Speaker 4>says he has on hand. Global News twenty four hours

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<v Speaker 4>a day and whenever you want it with Bloomberg News

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<v Speaker 4>Now in San Francisco. I'm Ed Baxter. This is Bloomberg Brian, and.

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<v Speaker 1>Thanks very much. Six minutes here passed the hour. Brian

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<v Speaker 1>Curtis and Grisner, Let's take a look at the top

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<v Speaker 1>business stories of the hour. The US Justice Department has

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<v Speaker 1>announced charges against several individuals for conducting a massive cryptocurrency

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<v Speaker 1>fraud scheme. The scheme ran to just under one point

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<v Speaker 1>nine billion dollars. In a statement today, the DOJ said

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<v Speaker 1>the defendants falsely represented that investors would receive substantial returns

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<v Speaker 1>paid from cryptocurrency mining operations. It said those returns did

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<v Speaker 1>not exist well.

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<v Speaker 2>Today, the US Treasury reduced its estimate for federal borrowing

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<v Speaker 2>for the current quarter, despite a widening fiscal deficit. Here in,

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<v Speaker 2>the US Treasury cut net borrowing. This is the estimate

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<v Speaker 2>from the period January through March down to seven hundred

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<v Speaker 2>sixty billion dollars. Here's the thing, The previous projection was

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<v Speaker 2>eight hundred sixty billion. That number we received in late October.

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<v Speaker 2>The reduction was really not that expected by many primary dealers,

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<v Speaker 2>so you had to move higher in bond prices yields

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<v Speaker 2>coming down. The ten year Treasury was last quoted in

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<v Speaker 2>New York at four point zero seven percent.

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<v Speaker 1>Brian, and we'll get a little bit more on this

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<v Speaker 1>from Garfield Reynolds coming up. Bloomberg Chief rates correspondent for Asia,

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<v Speaker 1>well Elon Musk says the first human patient has received

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<v Speaker 1>a brain implant from his startup, Neuralink. Musk said that

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<v Speaker 1>the patient is recovering well and that initial results are promising.

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<v Speaker 1>Neuralink's brain implant aims to help people with traumatic injuries

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<v Speaker 1>operate computers using only the thoughts. The firm received FDA

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<v Speaker 1>approval for the first human trials in May of last year.

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<v Speaker 2>Done so we know China, Evergrand has been ordered by

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<v Speaker 2>a judge in Hong Kong to liquidate. Well, now what

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<v Speaker 2>is sure to be a very complicated process begins. Evergrand

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<v Speaker 2>is a massive enterprise across hundreds of cities, a number

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<v Speaker 2>of businesses. Here's Bloomberg Steven Engel.

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<v Speaker 8>Will that court order be followed in Mainland, where there's

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<v Speaker 8>a different legal system obviously, which obviously takes direction essentially

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<v Speaker 8>from the Communist Party. So if there's a dispersal of

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<v Speaker 8>these assets, is it going to happen in China?

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<v Speaker 3>Right?

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<v Speaker 8>Because essentially there's no precedence for a large company like

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<v Speaker 8>this with a spaghetti bowl of different assets and liabilities

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<v Speaker 8>and priorities and international bondholders and different kinds of creditors.

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<v Speaker 8>Who's going to be left with the lion's share.

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<v Speaker 2>That is Bloomberg Steven Engel talking about the spaghetti bowl.

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<v Speaker 2>This company amassed more than three hundred billion dollars three

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<v Speaker 2>hundred billion in debt during the property boom in China. Well,

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<v Speaker 2>now Evergrand is valued valued at just two hundred and

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<v Speaker 2>seventy nine million, with an m SO ninety nine percent

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<v Speaker 2>below its peak. This, as Stephen highlighted, this liquidation is

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<v Speaker 2>going to be a key legal test for the courts

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<v Speaker 2>in Hong Kong. Where and on the mainland, I should

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<v Speaker 2>say as well, where most of Evergrand's assets reside.

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<v Speaker 1>Right, Well, you just wonder, Doug whether or not the

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<v Speaker 1>liquidator can get their hands on some of these assets

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<v Speaker 1>that are operated or on land that local governments operate in.

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<v Speaker 1>So it is going to be a fascinating story. We're

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<v Speaker 1>not going to know the answer, but absolutely international investors,

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<v Speaker 1>investor confidence will will be hinging a lot on this

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<v Speaker 1>as we go forward. Well, let's talk a little bit

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<v Speaker 1>more about the US Treasury reducing the estimate for federal

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<v Speaker 1>borrowing for the current quarter. We're joined now by Garfield Reynolds,

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<v Speaker 1>who's Bloomberg's chief rates correspondent for Asia. So in a

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<v Speaker 1>sense it's a good thing, Garfield, because the Treasury said, look,

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<v Speaker 1>you know, we've we had higher than projected net fiscal flows.

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<v Speaker 1>In otherwise, they just have more money on hand or

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<v Speaker 1>at hand than they expected. So from that standpoint, it's

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<v Speaker 1>a good thing. But then it also raises some questions

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<v Speaker 1>about the deficit and overall debt. Your thoughts on the announcement.

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<v Speaker 9>Well, you know, the Treasury, the last couple of times

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<v Speaker 9>they've made funding announcements have been very much you careful

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<v Speaker 9>not to set off the sort of response they got

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<v Speaker 9>middle of last year when they surprised the upside. Back then,

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<v Speaker 9>the assumption was that, you know, whatever you want to borrow,

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<v Speaker 9>people will borrow it, because what else are they going

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<v Speaker 9>to do? It's treasuries. That didn't turn out to be

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<v Speaker 9>the case, because you yield spiked in September and October

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<v Speaker 9>for a number of reasons. But that certainly didn't help. So,

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<v Speaker 9>you know, they avoided boosting bond issuance last time round

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<v Speaker 9>by increasing sales of bills. This time round, you know,

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<v Speaker 9>they've they've managed to come up with some numbers through

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<v Speaker 9>these better fiscal flows, through more cash on hand, so

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<v Speaker 9>that they're they're going to borrow less than they can

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<v Speaker 9>initially estimate estimated in the first quarter, and they're very

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<v Speaker 9>much looking forward to next quarter as being a quarter

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<v Speaker 9>where they will need to borrow even less. Uh. The

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<v Speaker 9>one concern there is that if there are tax cuts enacted,

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<v Speaker 9>you know, that that could throw a spanner in those works.

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<v Speaker 9>So they definitely are moving to a very careful management

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<v Speaker 9>of this issue because of all the concern the market

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<v Speaker 9>tomol that it helped to cause, you know, late last year.

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<v Speaker 2>One of the things that I find interesting is that,

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<v Speaker 2>you know, the Treasury has been under pressure because of

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<v Speaker 2>these rising yields in the market, so it's automatically forced

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<v Speaker 2>to pay a higher coupon than it would otherwise. It

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<v Speaker 2>seems like when you're talking about less money being needed

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<v Speaker 2>on the part of tapping the market in the face

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<v Speaker 2>of higher trade yields, that's also, I mean, kind of

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<v Speaker 2>a positive development, one would think.

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<v Speaker 9>Yeah, you could also argue in fact that it's a

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<v Speaker 9>sort of prudent management technique if you're the anticipation is

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<v Speaker 9>that the Fed will cut interest rates later on this year,

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<v Speaker 9>maybe not as much as the market is looking for,

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<v Speaker 9>but they will cut interest rates. That means bond yields,

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<v Speaker 9>all things being equal, should come down noticeably. So it

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<v Speaker 9>does make a lot of sense to try and hold

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<v Speaker 9>back on any borrowings until you get those lower rates

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<v Speaker 9>coming through. That way, you avoid those high coupons that

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<v Speaker 9>you were mentioning.

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<v Speaker 1>But in a sense, it's the fiscal working against the

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<v Speaker 1>Fed subjective to a degree, because with the lower bond

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<v Speaker 1>yields you had a tech stock spike, and that would

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<v Speaker 1>seem to be something that runs a little counter to

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<v Speaker 1>what the FED wants at at the moment. However, you know,

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<v Speaker 1>every department, every government agency does what it feels as best,

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<v Speaker 1>and this is the way the system works.

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<v Speaker 9>Yeah. Well, I mean, the one of the interesting factors

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<v Speaker 9>you're with those tech and other stocks was the way

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<v Speaker 9>that day rose yesterday and so did bonds. And that

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<v Speaker 9>continues this somewhat anomalous situation where bonds and stocks, the

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<v Speaker 9>prices of bonds and stocks are moving you fairly strongly

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<v Speaker 9>correlated together. That doesn't usually happen outside of what do

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<v Speaker 9>you know when rate cycles peak, and as you move

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<v Speaker 9>towards a situation where a FED with lower rates. The

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<v Speaker 9>big question going forward is when this correlation phrase, which

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<v Speaker 9>of the two asset classes is going to be worse off?

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<v Speaker 9>Normally it's been stocks because the Fed has ended up

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<v Speaker 9>engendering a recession this time around, if we do get

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<v Speaker 9>the soft landing that the Fed and so many others

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<v Speaker 9>are hopeful we will get, it might end up being

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<v Speaker 9>bonds that don't do quite so well.

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<v Speaker 2>Yeah, for the moment, I think we can agree that

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<v Speaker 2>financial conditions have loosened a bit given the price action

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<v Speaker 2>that you just described. On Wednesday, we're going to get

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<v Speaker 2>a more detailed plan at how the Treasury intends to

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<v Speaker 2>distribute this borrowing across the curve. I mean, whether more

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<v Speaker 2>is going to be done at the short end or

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<v Speaker 2>more at the long end. Do you have a sense

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<v Speaker 2>of what we may see on Wednesday.

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<v Speaker 9>Well, I mean we'll see. The markets expectation is very

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<v Speaker 9>much that the Fed, sorry that the Treasury will kind

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<v Speaker 9>of follow through with what it indicated earlier, and it

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<v Speaker 9>was expecting to increase the sizes of its auctions for

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<v Speaker 9>a longer term debt, not dip too much into the

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<v Speaker 9>well of short term debt of bills. So there is

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<v Speaker 9>an expectation that they will increase those, but that this

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<v Speaker 9>will kind of be like the last hurrah, that they

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<v Speaker 9>won't want to increase those again going forward, especially because

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<v Speaker 9>they're looking like they're given the impression that the big

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<v Speaker 9>funding jobs are to some extent behind them. We're getting

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<v Speaker 9>back to a more normal setup where in the second quarter,

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<v Speaker 9>for example, there'll be a relatively small borrowing requirement because

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<v Speaker 9>that's where tax receipts come in, and we'll see how

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<v Speaker 9>that goes. After all, we came into this announcement expecting

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<v Speaker 9>they would increase the estimated borrowing that they would be

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<v Speaker 9>doing this quarter, and we got a lower estimate. So

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<v Speaker 9>maybe that same sort of thing will happen with the

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<v Speaker 9>auction sizes, But the market is very much set up

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<v Speaker 9>for an increase in the auction sizes.

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<v Speaker 1>As we know, cash is fungible, even from China. Chinese

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<v Speaker 1>money is finding its way into US assets for sure,

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<v Speaker 1>and we did have this evergrand liquidation call yesterday from

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<v Speaker 1>High Court judge here, and we understand that state lenders

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<v Speaker 1>have been ramping up dollar sales to kind of offset

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<v Speaker 1>the negative impact from that. And so today we have

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<v Speaker 1>the ten year government, the Chinese government bond yelled down

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<v Speaker 1>and it's at the lowest level since two thousand and two.

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<v Speaker 1>Does all of this suggest that investors are just really

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<v Speaker 1>screaming for more action from the BBOC, Well.

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<v Speaker 9>It's partly that. It's partly also the acknowledgment that the

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<v Speaker 9>Chinese economy remains deeply troubled, and part of the part

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<v Speaker 9>of the reason for that is that with the fact

0:13:15.080 --> 0:13:17.560
<v Speaker 9>that they've got to manage currency, with the fact that

0:13:17.600 --> 0:13:20.360
<v Speaker 9>they've got this particular sort of government that they have

0:13:20.440 --> 0:13:23.160
<v Speaker 9>over there, there's a reluctance to do the sort of

0:13:23.600 --> 0:13:29.440
<v Speaker 9>your large actions that the FED has done for the

0:13:29.559 --> 0:13:32.719
<v Speaker 9>US economy. You would think when you've got a real

0:13:32.840 --> 0:13:35.360
<v Speaker 9>estate sector that there's in deep, deep trouble. Your Evergrand

0:13:35.440 --> 0:13:37.960
<v Speaker 9>is just the poster child for that, that you would

0:13:38.040 --> 0:13:43.240
<v Speaker 9>be looking at some sort of major bailout programs, big

0:13:43.320 --> 0:13:46.720
<v Speaker 9>rate cuts, maybe even quantitative easy that's what happened back

0:13:46.760 --> 0:13:48.839
<v Speaker 9>in two thousand and eight. But that's not the sort

0:13:48.880 --> 0:13:53.520
<v Speaker 9>of thing that China can do, and it's been trying

0:13:53.520 --> 0:13:55.920
<v Speaker 9>to turn a stock market around. But the problem is

0:13:55.960 --> 0:14:00.679
<v Speaker 9>that something like Evergrand just you're ways on intimate and

0:14:00.800 --> 0:14:04.800
<v Speaker 9>raises a concern that ordinary Chinese who have normally looked

0:14:04.840 --> 0:14:08.480
<v Speaker 9>at real estate as being a great way to save money.

0:14:08.480 --> 0:14:11.120
<v Speaker 9>That's where you put your nest egg is by investing

0:14:11.160 --> 0:14:14.280
<v Speaker 9>in real estate. That that's no longer way you want

0:14:14.280 --> 0:14:18.200
<v Speaker 9>to put your money, and in fact, that's if you

0:14:18.280 --> 0:14:20.320
<v Speaker 9>do have money in there, you might want to pull

0:14:20.360 --> 0:14:23.280
<v Speaker 9>that out again. So you can see that that sentiment

0:14:24.240 --> 0:14:27.000
<v Speaker 9>indicator for China is pretty gloomy.

0:14:27.440 --> 0:14:29.400
<v Speaker 2>Yeah, not to mention the fact that when you look

0:14:29.400 --> 0:14:32.520
<v Speaker 2>at the way in which foreign investors have been behaving

0:14:32.720 --> 0:14:35.600
<v Speaker 2>in terms of the Chinese markets, this obviously may dent

0:14:36.280 --> 0:14:39.360
<v Speaker 2>confidence even further at a time when China has been

0:14:39.400 --> 0:14:43.800
<v Speaker 2>clamoring for more foreign direct investment. Garfield will leave it there.

0:14:43.840 --> 0:14:46.760
<v Speaker 2>Thank you so much for being with us Bloomberg Scarfield Reynolds,

0:14:46.760 --> 0:14:49.520
<v Speaker 2>helping us understand what we've been talking about in terms

0:14:49.520 --> 0:14:51.280
<v Speaker 2>of the US Treasury today.

0:14:52.960 --> 0:14:55.800
<v Speaker 1>This is Bloomberg Daybreak Asia, your morning brief on the

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