© Reuters
Investing.com — Bond yields eased slightly after Thursday’s surge that weighed on Wall Street’s major indices, while bitcoin plummeted after a news report claimed billionaire Elon Musk’s SpaceX is worth the cryptocurrency it owns owns, written off. Developer in debt elsewhere Evergrande files for bankruptcy protection in US as troubles in China’s huge real estate sector continue to mount.
1. Futures fall after bond market sell-off rocks stocks
An aide to former US President Bill Clinton is said to have once quipped that if there were a reincarnation, he would love to return as a bond market. “You can intimidate anyone,” was his reasoning.
It’s an oft-repeated adage, but it’s still worth remembering after a day like Thursday when the price surged to its highest close since 2007 and the yield jumped to a 12-year high. Prices typically move inversely with yields.
The narrative driving the US government debt plunge revolves around stronger-than-expected economic data and the Federal Reserve’s recent meeting warning of continued “upward pressure” on inflation. Combining these two factors, markets are now anticipating that interest rates are likely to remain elevated for much longer.
While it would be an overstatement to say that investors were intimidated, it seems they at least took note of the rise in yields. Wall Street’s major indices fell for the third straight day, prolonging the August stock market malaise.
US stock futures edged lower on Friday as traders tried to gauge the impact of the bond market turmoil. As of 06:00 ET (10:00 GMT), the contract was down 47 points, or 0.14%, down 8 points, or 0.19%, and down 48 points, or 0.32%.
Meanwhile, benchmark government bond yields were already falling on the last trading day of the week.
2. Bitcoin’s volatility is returning
A period of relative stability has prevailed for much of the past two months, with the price of the world’s most well-known cryptocurrency at times hitting a yearly high of $31,818 in July.
But rising bond yields and the resulting skepticism about riskier assets took their toll on the digital token. Bitcoin collapsed more than 7% to $26.422 on Friday and posted heavy losses on Thursday. It is now more than 16% below the annual high.
Sentiment was also dampened by a report in the Wall Street Journal that said SpaceX, billionaire Elon Musk’s rocket company, depreciated the value of the bitcoins it holds by $373 million over the past year and into 2021 and the cryptocurrency have sold. Musk has become a fixture in the crypto community and has posted frequently about the market over the past few years.
Bitcoin’s decline comes at a legally tricky time for cryptocurrency-touch businesses. US regulators are trying to crack down on the sector, fearing it is “riddled with scams and scams.” Binance and Coinbase (NASDAQ:), two of the largest crypto exchanges, are now facing lawsuits from the Securities and Exchange Commission.
3. Evergrande files for bankruptcy protection
The China Evergrande (HK:) Group has filed for bankruptcy protection in a US court as the world’s most indebted property developer is working on a lengthy and massive restructuring deal with its creditors.
The company is seeking protection under Chapter 15 of the US bankruptcy statute, which would serve as protection for its US assets as it advances the restructuring of its more than $19 billion offshore debt. Evergrande, which in July reported $81 billion in losses in 2021 and 2022, is reportedly set to meet Hong Kong creditors this month over the restructuring.
Evergrande’s default on its dollar-denominated debt in 2021 triggered a liquidity crisis in China’s important real estate industry, which makes up a large part of the world’s second-biggest economy. Since then, it has threatened to infect other sectors and further hamper China’s hitherto sluggish post-pandemic recovery.
Dozens of developers have defaulted on payments since Evergrande collapsed, though Beijing has yet to step in to bail out any of those struggling companies.
However, the hot week for the property sector prompted the People’s Bank of China to say it would further tighten liquidity conditions after an emergency rate cut on Tuesday.
4. Yellow receives offer for property assets from rival Estes Express
Yellow (NASDAQ:) has agreed to sell its shipping centers to competitor Estes Express Lines for at least $1.3 billion, which would pay off nearly all of the failed trucker’s pre-bankruptcy debt.
According to Yellow’s attorney Allyson Smith at a court hearing Thursday, Estes had offered to fund Yellow’s liquidation as part of the bankruptcy, but instead struck a deal and acted as a stalking horse bidder for the real estate assets. That would mean that Estes’ bid could still be outbid by a higher or more tempting bid at a court-supervised auction.
Smith added that Yellow also decided to accept a $142.5 million loan from hedge fund Citadel and its major shareholder MFN Partners. The new financing will likely save Yellow between $27 million and $40 million and double the time the company has to sell its assets, she said. The loan must be approved by a Delaware judge.
Tennessee-based Yellow had just $32 million in cash when it filed for bankruptcy earlier this month, which it says wasn’t enough to survive during the bankruptcy sale of its trucks and other assets.
5. Crude Oil Plunge on China Growth Concerns, Fed Estimates
Oil prices eased on Friday, on track to end a seven-week winning streak amid mounting concerns over slowing growth in main crude oil importer China and the possibility of higher Federal Reserve interest rates.
Crude oil prices recovered somewhat on Thursday, rising from a two-week low after China’s central bank said it would inject liquidity into markets to boost economic growth.
At 06:00 ET, futures were down slightly to $80.19 a barrel, while the contract was down 0.37% to $83.81.
Both contracts are expected to fall over 3% this week after recovering over the past seven weeks amid prolonged supply cuts by major producers Saudi Arabia and Russia.
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