Treasuries conflicted over economy and debt piles up as China recovers

By Blu Putnam, Chief Economist & Erik Norland, Senior Economist, CME Group

Appreciating a Conflicted Treasury Market

• Market sentiment in Treasuries is conflicted over the economy.
• Rapid economic recovery or slow, sluggish growth in 2021.
• Treasuries are currently priced at the mid-point of both scenarios.
• Yields are likely to move quickly when one narrative gains control.

China’s Growth Recovers Amid Signs of Caution

• China’s economy expanded 4.9% in Q3, up from 3.2% in Q2.
• Industrial sector growing at 8-9% per year, service sector lags.
• China’s overall debt level has soared to 269% of GDP from 244%.
• If growth slows, could be bearish for commodities but lift US dollar.