Good morning. I'm Brian Curtiz.
And I'm Doug Krisner. Here are the stories we're following today.
The US is trying to find the right line to walk in response to the deadly drone attack in Jordan. At Baxter has the story and more from San Francisco.
Ed.
Yeah, that's right, Brian. At the same time, it is saying iron is behind the attacks for sure. Now, NSC official John Kirby says the US response will be at the right time, on its timeline.
We'll do that on our schedule, in our time, and we'll do it in the manner of the President's choosing as commander in chief. We'll also do it fully cognizant of the fact that these groups backed by Teyran have just taken the lives of American troops.
Now, Defense Secretary Lloyd Austin is a bit stronger in his response.
President and I will not tolerate attack on US forces and we will take all necessary actions to defend the US.
So what are the options, Well, Bloomberg's Jennifer Welsh.
Everything in terms of military tactics, from mer surgical strike, cyber attacks to more traditional option, and then in terms of targets. There's the more espiratory option of actually striking Iranian targets in irong to striking Iranian forces outside of the country to Iranian proxies and the infrastructure that supports them.
So the US preliminary findings on how the defense systems could have missed the incoming drone, well, they say that it apparently flew directly behind a US drone that was landing at the base, confusing the human and the digital defenders. Is Ready Prime Minister Benjamin net Yahoo in Paris to try to get a hostage return deal, says the meetings were constructive, but that significant gaps remain. As office says
those differences will be discussed at additional meetings this week. Meanwhile, Israel is saying that as many as as much as ten percent of the UN relief agencies twelve thousand works in Goza this un where members of Hamas or Palestinian Islamic Jihad Senate negotiators continue to work on a border deal. House Republican Greg Murphy on Bloomberg's balance of power says, the answer really is pretty clear.
We have to go back to the stay in Mexico policy. I mean, I think that was the star work of where all this began. We had Central American countries that had bought into this that they folks that seek asylum in the country of entry rather than transgressing across all of Central America.
Says the president has executive powers that he could use to get it done. Egene Carroll says that she is wanting to donate the award money that she wanted her civil suit against Donald Trump. Donate it. On ABC with George Stephanopoulos. She says that she does have a vague plan to now, I like to.
Give the money to something Donald Trump hates if it will cause him pay for me to give money to certain certain things. That is mind well, perhaps fund for the women who have been sexually assaulted by Donald Trump.
Trump's attorneys are, of course appealing that award. Meanwhile, Trump is facing the pair of major legal verdicts that could wipe out most, if not all, the cash that he says he has on hand. Global News twenty four hours a day and whenever you want it with Bloomberg News Now in San Francisco. I'm Ed Baxter. This is Bloomberg Brian, and.
Thanks very much. Six minutes here passed the hour. Brian Curtis and Grisner, Let's take a look at the top business stories of the hour. The US Justice Department has announced charges against several individuals for conducting a massive cryptocurrency fraud scheme. The scheme ran to just under one point nine billion dollars. In a statement today, the DOJ said the defendants falsely represented that investors would receive substantial returns
paid from cryptocurrency mining operations. It said those returns did not exist well.
Today, the US Treasury reduced its estimate for federal borrowing for the current quarter, despite a widening fiscal deficit. Here in, the US Treasury cut net borrowing. This is the estimate from the period January through March down to seven hundred sixty billion dollars. Here's the thing, The previous projection was eight hundred sixty billion. That number we received in late October.
The reduction was really not that expected by many primary dealers, so you had to move higher in bond prices yields coming down. The ten year Treasury was last quoted in New York at four point zero seven percent.
Brian, and we'll get a little bit more on this from Garfield Reynolds coming up. Bloomberg Chief rates correspondent for Asia, well Elon Musk says the first human patient has received a brain implant from his startup, Neuralink. Musk said that the patient is recovering well and that initial results are promising. Neuralink's brain implant aims to help people with traumatic injuries
operate computers using only the thoughts. The firm received FDA approval for the first human trials in May of last year.
Done so we know China, Evergrand has been ordered by a judge in Hong Kong to liquidate. Well, now what is sure to be a very complicated process begins. Evergrand is a massive enterprise across hundreds of cities, a number of businesses. Here's Bloomberg Steven Engel.
Will that court order be followed in Mainland, where there's a different legal system obviously, which obviously takes direction essentially from the Communist Party. So if there's a dispersal of these assets, is it going to happen in China?
Right?
Because essentially there's no precedence for a large company like this with a spaghetti bowl of different assets and liabilities and priorities and international bondholders and different kinds of creditors. Who's going to be left with the lion's share.
That is Bloomberg Steven Engel talking about the spaghetti bowl. This company amassed more than three hundred billion dollars three hundred billion in debt during the property boom in China. Well, now Evergrand is valued valued at just two hundred and seventy nine million, with an m SO ninety nine percent below its peak. This, as Stephen highlighted, this liquidation is going to be a key legal test for the courts
in Hong Kong. Where and on the mainland, I should say as well, where most of Evergrand's assets reside.
Right, Well, you just wonder, Doug whether or not the liquidator can get their hands on some of these assets that are operated or on land that local governments operate in. So it is going to be a fascinating story. We're not going to know the answer, but absolutely international investors, investor confidence will will be hinging a lot on this as we go forward. Well, let's talk a little bit more about the US Treasury reducing the estimate for federal
borrowing for the current quarter. We're joined now by Garfield Reynolds, who's Bloomberg's chief rates correspondent for Asia. So in a sense it's a good thing, Garfield, because the Treasury said, look, you know, we've we had higher than projected net fiscal flows. In otherwise, they just have more money on hand or at hand than they expected. So from that standpoint, it's a good thing. But then it also raises some questions about the deficit and overall debt. Your thoughts on the announcement.
Well, you know, the Treasury, the last couple of times they've made funding announcements have been very much you careful not to set off the sort of response they got middle of last year when they surprised the upside. Back then, the assumption was that, you know, whatever you want to borrow, people will borrow it, because what else are they going to do? It's treasuries. That didn't turn out to be the case, because you yield spiked in September and October
for a number of reasons. But that certainly didn't help. So, you know, they avoided boosting bond issuance last time round by increasing sales of bills. This time round, you know, they've they've managed to come up with some numbers through these better fiscal flows, through more cash on hand, so that they're they're going to borrow less than they can initially estimate estimated in the first quarter, and they're very much looking forward to next quarter as being a quarter
where they will need to borrow even less. Uh. The one concern there is that if there are tax cuts enacted, you know, that that could throw a spanner in those works. So they definitely are moving to a very careful management of this issue because of all the concern the market tomol that it helped to cause, you know, late last year.
One of the things that I find interesting is that, you know, the Treasury has been under pressure because of these rising yields in the market, so it's automatically forced to pay a higher coupon than it would otherwise. It seems like when you're talking about less money being needed on the part of tapping the market in the face of higher trade yields, that's also, I mean, kind of a positive development, one would think.
Yeah, you could also argue in fact that it's a sort of prudent management technique if you're the anticipation is that the Fed will cut interest rates later on this year, maybe not as much as the market is looking for, but they will cut interest rates. That means bond yields, all things being equal, should come down noticeably. So it does make a lot of sense to try and hold back on any borrowings until you get those lower rates
coming through. That way, you avoid those high coupons that you were mentioning.
But in a sense, it's the fiscal working against the Fed subjective to a degree, because with the lower bond yields you had a tech stock spike, and that would seem to be something that runs a little counter to what the FED wants at at the moment. However, you know, every department, every government agency does what it feels as best, and this is the way the system works.
Yeah. Well, I mean, the one of the interesting factors you're with those tech and other stocks was the way that day rose yesterday and so did bonds. And that continues this somewhat anomalous situation where bonds and stocks, the prices of bonds and stocks are moving you fairly strongly correlated together. That doesn't usually happen outside of what do you know when rate cycles peak, and as you move
towards a situation where a FED with lower rates. The big question going forward is when this correlation phrase, which of the two asset classes is going to be worse off? Normally it's been stocks because the Fed has ended up engendering a recession this time around, if we do get the soft landing that the Fed and so many others are hopeful we will get, it might end up being bonds that don't do quite so well.
Yeah, for the moment, I think we can agree that financial conditions have loosened a bit given the price action that you just described. On Wednesday, we're going to get a more detailed plan at how the Treasury intends to distribute this borrowing across the curve. I mean, whether more is going to be done at the short end or more at the long end. Do you have a sense of what we may see on Wednesday.
Well, I mean we'll see. The markets expectation is very much that the Fed, sorry that the Treasury will kind of follow through with what it indicated earlier, and it was expecting to increase the sizes of its auctions for a longer term debt, not dip too much into the
well of short term debt of bills. So there is an expectation that they will increase those, but that this will kind of be like the last hurrah, that they won't want to increase those again going forward, especially because they're looking like they're given the impression that the big
funding jobs are to some extent behind them. We're getting back to a more normal setup where in the second quarter, for example, there'll be a relatively small borrowing requirement because that's where tax receipts come in, and we'll see how that goes. After all, we came into this announcement expecting they would increase the estimated borrowing that they would be
doing this quarter, and we got a lower estimate. So maybe that same sort of thing will happen with the auction sizes, But the market is very much set up for an increase in the auction sizes.
As we know, cash is fungible, even from China. Chinese money is finding its way into US assets for sure, and we did have this evergrand liquidation call yesterday from High Court judge here, and we understand that state lenders have been ramping up dollar sales to kind of offset the negative impact from that. And so today we have the ten year government, the Chinese government bond yelled down and it's at the lowest level since two thousand and two.
Does all of this suggest that investors are just really screaming for more action from the BBOC, Well.
It's partly that. It's partly also the acknowledgment that the Chinese economy remains deeply troubled, and part of the part of the reason for that is that with the fact that they've got to manage currency, with the fact that they've got this particular sort of government that they have over there, there's a reluctance to do the sort of your large actions that the FED has done for the US economy. You would think when you've got a real
estate sector that there's in deep, deep trouble. Your Evergrand is just the poster child for that, that you would be looking at some sort of major bailout programs, big rate cuts, maybe even quantitative easy that's what happened back in two thousand and eight. But that's not the sort of thing that China can do, and it's been trying
to turn a stock market around. But the problem is that something like Evergrand just you're ways on intimate and raises a concern that ordinary Chinese who have normally looked at real estate as being a great way to save money. That's where you put your nest egg is by investing in real estate. That that's no longer way you want to put your money, and in fact, that's if you do have money in there, you might want to pull
that out again. So you can see that that sentiment indicator for China is pretty gloomy.
Yeah, not to mention the fact that when you look at the way in which foreign investors have been behaving in terms of the Chinese markets, this obviously may dent confidence even further at a time when China has been clamoring for more foreign direct investment. Garfield will leave it there. Thank you so much for being with us Bloomberg Scarfield Reynolds, helping us understand what we've been talking about in terms of the US Treasury today.
This is Bloomberg Daybreak Asia, your morning brief on the story is making news from Hong Kong to Singapore and Wall.
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