Market Morsel: The name is Bond, Chinese Bond.

Market Morsel

Discretionary spending is just that – discretionary. If people have money, they will spend it on items that are not necessary. Natural fibres are expensive and fit within that category. There are cheaper man made alternatives, which although not as good, are at the end of the cheap considerably cheaper.

This week, what about Chinese bonds and wool/cotton?

China is clearly a powerhouse of the global economy, especially since the turn of this century. Chinese bonds have been a strong indicator of wool performance over much of that time.

The charts below shows the change in wool/cotton price, along with a lagged bond yield (inverted).

The Chinese bond yield, when lagged, seems to provide an insight into the trend of fibres. When bond yields decline, fibre prices tend to perform well, and when they increase, that tends to correspond to a time of declining fibre prices.

Lagged Chinese bonds are showing a cheapening of credit over the next 12 months. It is important to note that leading indicators are not an exact science. There are other factors to take into consideration. However, they are a valuable indicator to maintain a close eye on.

Leading indicators should never be used in isolation to make sales/purchasing decisions, but one of a bundle of tools to help develop a view on the market.