There was a massive turnout in the market for today’s game of Limbo, as stocks and bond yields tried to see “how low they can go”. In what was the worst sell-off in 2019, and with all 30 Dow stocks down, the market fell as much as 961 points as the trade war heightened with retaliation from China. Over the weekend, China announced a halt on U.S. agricultural goods, and also allowed their currency to depreciate to more than a 7 to 1 ratio. The Dow fell 767 points and closed the day at 25,717.
The Chinese devaluation of their currency was a big and interesting news item today. President Trump tweeted his displeasure over the Chinese currency devaluation, but this move by China was very interesting, both because it potentially helps and hurts them. By lowering the value of their currency, they certainly diminish the pain of tariffs as the dollar has more purchasing power, which means U.S. companies can still purchase a similar amount of volume with the same amount of dollars. However, on the other side, many Chinese corporations have outstanding loans in dollars, and as the Yuan weakens, it becomes more expensive for these corporations to pay their debt. In addition, some commodities, such as oil, is purchased in U.S. dollars, and now that becomes more expensive for the Chinese, putting more pressure on an economy that already has plenty of pressure on it with multi-national corporations, as well as other Chinese investors, moving much of their supply chain and other investments outside of China.
All the money fleeing from stocks hit the bond market. With investors buying bonds, prices rose and yields plummeted as the 10-year Treasury hit 1.72% at one point during the day. Within the last year, the 10-year has been at 3.25%, and as of 6 months ago, it was around 2.75%. Mortgage rates in the U.S. are getting more and more attractive, and especially as bond yields continue to be low with all the turmoil in Europe. Recently, Danish bank, Jyske Bank A/S, announced it will sell a 10-year mortgage bond at a fixed rate of negative 0.5%. I guess with all the popularity of cash back credit cards, they figured they would try cash back mortgages!