China's cheap money, the long bond, the krona

2026-11-05 · China and Asia · China's cheap money and rotation, Constan's flattening and long bonds, The krona breaks eleven

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China's record-low bank funding and a chip halt in Seoul, Andy Constan's profit-taking on long bonds tested, and a krona through a level we said would hold.

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Cheap money in China, a halt in Seoul

Asia split cleanly overnight. Bloomberg reports Chinese bank funding costs at a record low after a shift in the People's Bank of China's rate setting. In Hong Kong investors rotated away from AI into value, and Tencent rose 6% to a three-week high after launching its Hunyuan AI model. In Seoul, selling in chip stocks triggered a trading halt on the KOSPI while Chinese shares outperformed.

The headline rate has not moved: the one-year loan prime rate is still 3.0%, with Chinese CPI at 0.9% in September. The easing is in the plumbing. As long as inflation stays under 1%, we expect the LPR to stay at or below 3% through mid-2027.

Our read: this is a rotation inside Asia — out of AI hardware, into cheaply funded domestic Chinese names — not a recovery in Chinese household demand.

On the chip chain we covered yesterday, the only new thing is the halt. The next link is a 10% week for Samsung and SK Hynix; the link that would make it an index event is credit, and US high yield was 3.4 percentage points on Tuesday, up from 3.18 but short of 4.

Katie Stockton of Fairlead Strategies argued on Thoughtful Money with Adam Taggart that the major indices are testing technical support with no confirmed breakdown, while momentum weakens and credit spreads widen. We agree credit is the test; at 3.4 the spread is widening, not breaking, and our line is 400 bp.

The stress sits in a narrow corner. Nick Puckrin on Finance Bureau warns of a debt crisis among neocloud providers that borrowed against Nvidia GPUs, with bond yields near 16%. Warren Pies on Forward Guidance downgraded US equities to neutral on deteriorating technicals, credit spreads and hawkish Fed expectations, while calling AI fundamentals intact. We agree with both that financing, not demand, is breaking; we disagree with Puckrin on reach, because broad high yield is not confirming.

For a Nordic investor, the routes are Nordic network and equipment names that trade with the chip tape, and European credit: Nikkei Asia reports the French financial groups Tikehau and Natixis looking to Asia as the US data-centre boom raises risks.

Read: levels 3% on the LPR and 400 bp on US high yield; trigger a fixing below 3% with Hong Kong tech outperforming Seoul's chipmakers for another week; what would change this: Seoul recovering the halt within days while Hong Kong gives back its gains.

Constan takes profit on the long bond

Andy Constan argued on Monetary Matters with Jack Farley that post-midterm gridlock will entrench fiscal drag, and he is flattening his bond position as yields fall and corporate debt issuance rises.

Our standing view is that the US 30-year grinds toward 5.75% by mid-2027. Prices went the other way this month: the 30-year is 5.28% from 5.66%, the 10-year 4.9% from 5.31%, the 2-year 4.58%. We keep the view and say plainly that the month pointed lower.

We agree with Constan on fiscal drag — it is part of why the long end rallied. We disagree on what comes next: the Fed is still hiking, and rising corporate issuance is new supply competing for duration buyers. With the investor who rode the rally now flattening, the easy part is behind us. The month delays our view rather than turning it.

More corporate debt arriving while high-yield spreads widen is a slow weight on equities, which fits our standing view that the S&P settles lower by mid-2027.

Read on the S&P: level about 7,689, 5% above its 200-day average; trigger a close below that average; what would change this: the index holding above it through year-end while high yield narrows back under 3.18.

Read on the long bond: level 5.28% on the 30-year; trigger the 30-year back above 5.66 with the Fed still hiking; what would change this: the 30-year falling as far again while the Fed hikes, which would mean fiscal drag is winning. We expect Friday's US unemployment rate at 4.2% or lower; a print above 4.2 with Treasuries still rallying would mean Constan's reading beats ours.

The krona breaks eleven

EUR/SEK is 10.97, with its weekly average down 0.8% from 11.05. Our standing view is that the pair stays above 11 through mid-2027; it is now below that level. What changed is Swedish data: inflation 1.0% in September from 0.3%, unemployment down to 8.6% from 8.9%, and the 2-year yield up eight basis points in a month to 2.72%, while the euro-area 10-year fell fourteen basis points to 3.98%.

That undercuts our call for a Riksbank hold at 1.75% on 12 November. Core fell to 1.1% from 1.2%, but unemployment has turned and the bank's own path implies 1.85% on average this quarter. With the 2-year and the krona leaning toward a move, we step back from a firm hold.

Read: levels 11 on EUR/SEK and the 200-day at 10.94; trigger back above 11: a Riksbank decision on the twelfth with a path that does not rise; what would change this: a Riksbank decision that lifts the rate with the euro below its 200-day — then the case for a weak krona is not there at this price.

Norway faces the same question from the other side. Our reason is that Norwegian core fell to 3.1% from 3.5% since the September hike. EUR/NOK at 10.32 sits inside our view of below 11.

Read: level 4.5%; confirmed by a hold that keeps another hike open; wrong if the bank hikes today.

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