China’s Three Major Financial Measures to Support the Property Market

Reported on AIMSTAR.CA on May 17 – The People’s Bank of China announced three significant support policies for the real estate market in the financial sector: lowering the interest rate for housing provident fund loans, reducing the minimum down payment ratio to historic lows, and abolishing the national policy floor for mortgage rates. Firstly, for residents purchasing commercial residential properties with loans, the minimum down payment ratio for the first home purchase has been adjusted from 20% to no less than 15%, and for the second home purchase, it has been adjusted from 30% to no less than 25%, both reaching historical lows. Simultaneously, the interest rate for personal housing provident fund loans has been lowered by 0.25 percentage points. The interest rates for first-home personal housing provident fund loans, for both periods under 5 years (inclusive of 5 years) and over 5 years, have been adjusted to 2.35% and 2.85%, respectively. For second-home personal housing provident fund loans, the interest rates for both periods under 5 years (inclusive of 5 years) and over 5 years have been adjusted to no less than 2.775% and 3.325%, respectively. Additionally, the national-level policy floor for mortgage rates for first and second home purchases has been abolished.

China Issues First Batch of 30-Year Ultra-Long Special Bonds

Reported on AIMSTAR.CA on May 17 – China’s Ministry of Finance issued the first batch of 30-year ultra-long special bonds, which received strong market demand. Following the release of the bidding results, the yield of China’s ten-year treasury bonds rose. According to the issuance arrangement, the bonds discovered today are special bonds with a maturity of 30 years, totaling 40 billion yuan, with interest accruing from May 20, 2024. Interest will be paid semi-annually, with payment dates on May 20th and November 20th each year, and the principal will be repaid along with the final interest payment on May 20, 2054. The weighted average bid rate was 2.57%, with a bid-to-cover ratio of 3.9 and a marginal bid-to-cover ratio of 382.6. After the data was released, the yield of Chinese government bonds rose, with the yield on the active 10-year Treasury bond 240004 increasing by 1.4 basis points to 2.3240%.

UK Inflation Cools Less Than Expected

Reported on AIMSTAR.CA on May 21 – The British inflation rate fell less than market expectations in April, pouring cold water on investors who were counting on the Bank of England to cut interest rates next month, and also foreshadowed the possibility of global inflationary pressures. Still stubborn. Data from the British Office for National Statistics show that the annual consumer price index (CPI) slowed to 2.3%, a significant fall from 3.2% in March, reaching the lowest point since July 2021. However, this figure was still higher than market forecasts of 2.1%. What is particularly critical is that service sector inflation – the core indicator used by the Bank of England to assess domestic price pressures – increased instead of decreasing, rising from 6.0% in March to 5.9%, exceeding the expected value of 5.5%. Economists had previously forecast a deeper fall in inflation, citing a 12% cut in regulated household energy price tariffs since last month. After the April inflation data is released, a series of official labor market data and May inflation will be released one after another, providing the basis for the Bank of England’s next round of policy decisions on June 20.

Close to the peak after World War II! Goldman Sachs warns: U.S. debt snowball could double to 130% of GDP

Reported on AIMSTAR.CA, May 22 – Goldman Sachs analysts said in a note that they now expect the debt-to-GDP ratio to reach 130% by 2034, which is significantly higher than their earlier forecast of 97% . The report reflects the serious challenges of the fiscal environment over the past five years, which is reflected in the fact that even when the economy is at full employment, the primary deficit after deducting interest costs continues to exist, and the scale exceeds the historical norm of 5% of GDP. Currently, the U.S. debt-to-GDP ratio has risen by 19 percentage points to 98%, and Goldman Sachs points out that this trend is heading toward exceeding the post-World War II peak level.

Additionally, interest rates on new Treasury debt have nearly doubled, which has not only exacerbated the growth trajectory of the debt-to-GDP ratio but also increased real interest payments as a share of GDP. Goldman Sachs’ latest forecast is based on consideration of the long-term average interest rate on government debt, nominal GDP growth and the non-recession primary deficit. The analysis reveals that the debt-to-GDP ratio is unusually sensitive to the difference between interest rates and GDP growth rates (r-g). They adopted an r-g difference assumption of -0.25 percentage points, which is consistent with historical levels of non-high inflation. Historically, substantial reductions in the debt-to-GDP ratio have often been achieved through a variety of channels, including sustained fiscal surpluses, favorable interest rate and growth rate differentials, high inflation, or financial repression policies. However, the current situation in the United States shows that there is insufficient political motivation to reduce the deficit, which has raised concerns about fiscal sustainability and discussion that a historically rare fiscal surplus may be needed to stabilize the debt.