Titan Investments — Bond yields pull back slightly following a surge on Thursday that weighed on the main indices on Wall Street, while Bitcoin tumbles after a news report claimed that billionaire Elon Musk’s SpaceX wrote down the value of the cryptocurrency that it owns. Elsewhere, indebted developer Evergrande files for bankruptcy protection in the U.S., as problems continue to mount in China’s massive property sector.
1. Futures dip after bond market sell-off rocks stocks
An advisor to former U.S. President Bill Clinton is said to have once quipped that, if reincarnation existed, he would like to come back as the bond market. “You can intimidate everybody” was his reasoning.
It’s an oft-repeated adage, but still worth recalling after a day like Thursday, when the 10-year Treasury yield surged to its highest close since 2007 and the 30-year T-note yield jumped to a 12-year high. Prices typically move inversely to yields.
The narrative driving the tumble in U.S. government debt revolves around stronger-than-anticipated economic data and the Federal Reserve’s warning in the minutes from its most recent meeting of persistent “upside” pressures to inflation. Bake these two together and markets are now guessing that interest rates will likely stay elevated for longer.
While it may be too much to say that investors were intimidated, it sure seems like they at least took note of the surge in yields. The main indices on Wall Street dropped for a third straight day, extending an August malaise in equity markets.
U.S. stock futures dipped slightly on Friday as traders tried to gauge the implications of the bond market’s ructions. At 06:00 ET (10:00 GMT), the Dow futures contract was down 47 points or 0.14%, S&P 500 futures declined by 8 points or 0.19%, and Nasdaq 100 futures dropped by 48 points or 0.32%.
Benchmark Treasury yields, meanwhile, declined early on in the final trading day of the week.
2. Bitcoin volatility returns
Bitcoin has seen a period of relative stability over much of the past two months, with the price of the world’s most well-known cryptocurrency at one point reaching a yearly high of $31,818 in July.
But soaring bond yields, and subsequent skittishness around riskier assets, have taken their toll on the digital token. Bitcoin slumped by more than 7% on Friday to $26,422, heaping on to steep losses on Thursday. It is now more than 16% below the annual high.
Sentiment was also dented by a report in the Wall Street Journal that said that SpaceX, billionaire Elon Musk’s rocket company, had written down the value of Bitcoin it owns by $373M last year and in 2021 and had sold the cryptocurrency. Musk has become something of a fixture in the crypto community, often posting about the market over recent years.
The drop in Bitcoin comes at a delicate time legally for cryptocurrency-adjacent companies. U.S. regulators are attempting to crack down on the sector due to concerns that it is “rife” with fraud and scams. Binance and Coinbase (NASDAQ:COIN), two of the largest crypto exchanges, now face lawsuits from the Securities and Exchange Commission.
3. Evergrande files for bankruptcy protection
China Evergrande (HK:3333) Group has filed for bankruptcy protection in a U.S. court, as the world’s most indebted developer works on a prolonged and massive restructuring deal with its creditors.
The company is seeking protection under Chapter 15 of the U.S. bankruptcy code, which would act as a shield for its U.S. assets as it hashes out the restructuring of its more than $19 billion in offshore debts. Evergrande, which reported losses of $81B over 2021 and 2022 in July, is reportedly due to meet with creditors in Hong Kong about the restructuring this month.
Evergrande’s default on its dollar-denominated debts in 2021 sparked a liquidity crisis in China’s vital real estate industry, which accounts for a large portion of the world’s second-largest economy. It has since threatened to infect other sectors and further hamper what has been a sluggish post-pandemic recovery in China.
Dozens of developers have defaulted since Evergrande’s collapse, although Beijing has yet to step in to bail out any of these ailing firms.
However, the torrid week for the property sector did lead China’s central bank to say it will continue to pump up liquidity conditions after an emergency rate cut on Tuesday.
4. Yellow receives bid for property assets from rival Estes Express
Yellow (NASDAQ:YELL) has agreed to sell its shipment centers to rival Estes Express Lines for at least $1.3B, which would be close to covering all of the failed trucker’s pre-bankruptcy debt.
Estes had offered to finance Yellow’s wind-down during its bankruptcy proceeds, but instead struck a deal to be a stalking horse bidder for the property assets, according to Yellow’s lawyer Allyson Smith at a court hearing on Thursday. That would mean that Estes’s bid could still be trumped by either a higher or more enticing proposal during an auction overseen by the court.
Smith added that Yellow also decided to accept a $142.5M loan from hedge fund Citadel and its top shareholder MFN Partners. The new financing will likely save Yellow between $27M and $40M and double the time the firm has to sell off its assets, she said. The loan will need to be approved by a judge in Delaware.
Tennessee-based Yellow had only $32M in cash on hand when it filed for bankruptcy earlier this month, which it claimed was not enough to last it during the bankruptcy sale of its trucks and other assets.
5. Crude slumps amid China growth concerns, Fed rate estimates
Oil prices slipped Friday, putting them on course to end a seven-week winning streak, as concerns mount over slowing growth in top crude importer China as well as the potential of higher interest rates from the Federal Reserve.
Crude prices saw some strength on Thursday, rising from a two-week low after China’s central bank said it will keep markets flush with liquidity to help shore up economic growth.
By 06:00 ET, the U.S. crude futures edged lower to $80.19 a barrel, while the Brent contract dropped 0.37% to $83.81.
Both contracts were set to lose over 3% this week after having rallied for the past seven weeks following extended supply cuts by major producers Saudi Arabia and Russia.
