Dec 16, 2018

The U.S. is not a riskier bet than China

Illustration: Lazaro Gamio/Axios

It's certainly a striking headline: "Markets Conclude the U.S. Is Riskier Than China." And the author should know whereof he speaks: Matthew Winkler, the editor-in-chief emeritus of Bloomberg News, literally wrote the book on how to report on markets.

But Winkler is wrong. (And/or he has created "an unintentional Sokal Hoax for finance.") Contra Winkler's assertion, the U.S. Treasury does not have to "pay a premium over Chinese bonds to attract investors." To see that, just compare the two countries' bond yields. China sometimes borrows in dollars, so we can compare apples to apples. And the evidence is clear: At every maturity, China pays more than the U.S. does.

  • A bond maturing in 2022 yields 3.1%, or 33bp over Treasuries.
  • A bond maturing in 2023 yields 3.3%, or 50bp over Treasuries.
  • A bond maturing in 2027 yields 3.5%, or 62bp over Treasuries.
  • A bond maturing in 2028 yields 3.6%, or 72bp over Treasuries.
  • A bond maturing in 2048 yields 4.1%, or 96bp over Treasuries.

Winkler is comparing domestic-currency interest rates; he concludes that there's a "dichotomy between the U.S and China in the credit markets." But in doing so he ignores the fact that he's comparing two entirely different currencies. He also makes two category errors.

  • These numbers aren't about credit. Countries that issue debt in their own currency, like China and the U.S., can always print money to repay that debt. Local-currency bond yields, by definition, are rates, not credit.
  • There is no correlation between interest rates and riskiness. Italy is a risky country, but the yield on its 1-year notes is only 0.3%. U.K. 1-year bonds, at the height of Brexit chaos, yield 0.8%. Meanwhile, the U.S., which remains the global hegemon and the safest haven in the world, has a 1-year risk-free rate of 2.7%.

Be smart: Local government-bond interest rates are mostly a function of domestic monetary policy and inflation expectations; they tell you next to nothing about a country's creditworthiness. Neither do they indicate anything about endogenous economic risk.

Go deeper: The market rally that could signal a coming recession

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Coronavirus dashboard

Illustration: Sarah Grillo/Axios

  1. Global: Total confirmed cases as of 12:30 a.m. ET: 859,556 — Total deaths: 42,332 — Total recoveries: 178,300.
  2. U.S.: Leads the world in confirmed cases. Total confirmed cases as of 12:30 a.m. ET: 189,510 — Total deaths: 4,076 — Total recoveries: 7,109.
  3. Business updates: Should you pay your rent or mortgage during the coronavirus pandemic? Find out if you are protected under the CARES Act.
  4. Public health updates: More than 400 long-term care facilities across the U.S. report patients with coronavirus — Older adults and people with underlying health conditions are more at risk, new data shows.
  5. Federal government latest: President Trump said the next two weeks would be "very painful," with projections indicating the virus could kill 100,000–240,000 Americans.
  6. Coronavirus in custody: Inmates in all U.S. federal prisons are set to enter a 14-day quarantine on April 1. A federal judge on Tuesday ordered U.S. Immigration and Customs Enforcement to release 10 detained immigrants who are at risk of contracting COVID-19 while in confinement.
  7. U.S.S. Theodore Roosevelt: Captain of nuclear aircraft carrier docked in Guam pleaded with the U.S. Navy for more resources after more than 100 members of his crew tested positive.
  8. What should I do? Answers about the virus from Axios expertsWhat to know about social distancingQ&A: Minimizing your coronavirus risk.
  9. Other resources: CDC on how to avoid the virus, what to do if you get it.

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U.S. coronavirus updates: Death toll tops 4,000

Data: The Center for Systems Science and Engineering at Johns Hopkins; Map: Andrew Witherspoon/Axios

The novel coronavirus has now killed more than 4,000 people in the U.S. — with over 1,000 deaths reported in New York City alone, per Johns Hopkins data. The number of deaths are still much lower than those reported in Italy, Spain and China.

Of note: Hours earlier, President Trump noted it's "going to be a very painful two weeks," with projections indicating the novel coronavirus could kill 100,000–240,000 Americans — even with strict social distancing guidelines in place. "They are going to be facing a war zone," he said of medical workers.

Go deeperArrowUpdated 1 hour ago - Health

World coronavirus updates: UN warns of recession with "no parallel" to recent past

Data: The Center for Systems Science and Engineering at Johns Hopkins, the CDC, and China's Health Ministry. Note: China numbers are for the mainland only and U.S. numbers include repatriated citizens and confirmed plus presumptive cases from the CDC

The novel coronavirus pandemic is the "greatest test" the world has faced together since the formation of the United Nations just after the Second World War ended in 1945, UN chief António Guterres said Tuesday.

The big picture: COVID-19 cases surged past 858,000 and the death toll exceeded 42,000 Tuesday night, per Johns Hopkins data. Italy reported more than 12,000 deaths.

Go deeperArrowUpdated 3 hours ago - Health