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Illustration: Rebecca Zisser/Axios
Chinese onshore bonds, denominated in yuan, officially join the Bloomberg Barclay's Global Aggregate Index today, providing access to China's $13 trillion debt market, the world's third-largest after the U.S. and Japan.
The index is tracked by around $3 trillion of assets and will include debt securities issued by China's treasury or its 3 policy banks. The initial weighting will grow to 6% over a 20-month phase-in program, meaning about $180 billion of investor capital will flow to China.
Why it matters: This is a major milestone in China's development as a growing power in global financial markets.
Today's inclusion will make the yuan the fourth-largest currency component in the globally tracked bond index behind the dollar, euro and yen. Right now foreign investors own just 2% of onshore bonds, according to Bloomberg.
Be smart: That's a big step considering the significant concerns about Chinese government involvement in the country's businesses and its currency. Further, its ratings agencies are seen as unreliable and sometimes untrustworthy.
What's next? Chinese government debt also is on a watchlist of bonds to join FTSE Russell’s World Government Bond Index.
Chinese ratings agencies are currently the only ones allowed to rate China's bonds. And while the agencies have long been notorious for their "unscrupulous business practices," many regulatory reforms are happening, Jaquet tells Axios.
The state is allowing defaults, including some by issuers with high ratings. The People’s Bank of China and the China Securities Regulatory Commission have been tinkering since 2017 with guidelines for ratings agencies to "push forward communication in the bond market, and promote the orderly development of the rating industry."
The brief selective default of Ohio-based coal company Murray Energy brought the total number of global corporate defaults to 27 this year, 19 of which have come from the U.S., with 4 in the metals and mining space, S&P Global said.
Why it matters: "The metals, mining, and steel sector is off to a rocky start this year with four defaults, already surpassing last year's full-year tally of three," Diane Vazza, head of S&P Global Fixed Income Research, said in a note last week. "Two of the four defaulters in the sector are U.S. coal producers."
The U.S. expects dozens more coal plant closures this year, including the Navajo Generating Station, the largest coal-fired plant in the western U.S., which provides power to Arizona, Nevada and California.
The big picture: This is a long-running theme in the coal industry. In 2010, coal-fired power plants provided 45% of U.S. electricity generation, according to a report from The Week. In September, there were almost 200 fewer coal plants and they provided 30% of the country's electricity. Many more plants are set to be shuttered in the next 5 years.
What they're saying: Paul Browning, CEO and president of Mitsubishi Hitachi Power Systems Americas, which makes technology for electricity, including coal, echoed what most other U.S. energy executives are saying.
Watch this space: The U.S. so far accounts for 70% of the world's defaults in 2019, followed by emerging markets with 15%. Bankruptcy is the leading cause of defaults, per S&P.
There are lots of reasons to be very worried about the markets and the economy, should you be so inclined, Axios' Felix Salmon writes.
All of these concerns can easily be countered, if you're feeling bullish. As of Friday, the yield curve is no longer inverted; economic growth is expected to pick up again in the second quarter; the people calling for rate cuts say that there's no emergency; IPOs are a sign of optimism, not a reason for pessimism.
The bottom line: The stock market loves nothing more than to climb a wall of worry, and it duly posted a spectacularly good first quarter. Bond investors were happy too, with the 10-year bond yield falling to levels not seen since 2017. That in turn created new optimism for mortgage origination. The macroeconomic concerns are real, but the bull market rages onward.
Public companies in the health care sector have suffered so far this year and the Trump administration looks to be plowing ahead on new drug price regulations the industry fears could do more damage.
The administration is hoping to break through the cycle of legal and political setbacks that have stymied the rest of its health care agenda, Axios' Sam Baker writes.
The big picture: The administration has several proposed rules that take on some aspect of the drug-pricing system, and is quietly talking with congressional Democrats on the issue, too.
Why it matters to the market: Health care stocks were the S&P's worst performers during the first quarter, rising just 6% while the broader index rose 13.1% and notched its best start to a year since 1998. The best performing sector, information technology, saw a 19.3% gain in the quarter.
That's a 180° turn from the fourth quarter of 2018 when health care stocks gained 3.7% vs a 7.8% decline for the broader index, notes Lindsey Bell, an investment strategist at CFRA Research.
Biotech companies have slumped as drug approvals have stagnated and times are expected to continue to decline under the Trump administration's FDA, she writes in an editorial for Fox Business.
Editor's note: The second story was updated with new details from S&P, which now says its report shows Murray Electric was in default at the time but now has a forward-looking rating of CCC+. It also corrects the use of the word "corporate failures" with "defaults."