Source: Bloomberg

The whole China credit crunch story is hokum. There are regulatory measures to prevent brokers from circumventing margin rules, there is a regulatory crackdown on the dodgy Wealth Management Products market, and there is an effort to discourage local governments from using their own financing vehicles to promote their own projects–but credit is rolling out to the rest of the economy.

Bond yields, to be sure, have climbed about 1.2% since the end of 2016, but they have done so smoothly with no big jumps. The attached chart shows the 5-year Chinese government bond yield against a measure of volatility (GARCH) that emphasizes big jumps. It should be kept in mind, though, that nominal GDP in China is growing by 11.8% a year. With 11.8% nominal growth, what do you want the nominal government bond yield to be? US nominal GDP is growing at 4% a year and the nominal 5-year bond yield is 2.14%.