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Falling Bond Yields Show It’s Crunch Time In China

Falling Bond Yields Show It’s Crunch Time In China

Authored by Simon Black, Bloomberg macro strategist,

Sovereign yields in China have been…

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Falling Bond Yields Show It's Crunch Time In China

Authored by Simon Black, Bloomberg macro strategist,

Sovereign yields in China have been falling in recent months, in marked contrast to almost every other major country. This is a key macro variable to watch for signs China is ready to ease policy more comprehensively as its tolerance is tested for an economy that is becoming increasingly deflationary. Further, vigilance should be increased for a yuan devaluation. Though not a base case, the tail-risk of one occurring is rising.

Year of the Dragon in China it may be, but the economy has yet to exhibit the abundance of energy and enthusiasm those born under the symbol are supposed to possess. China failed to exit the pandemic with the resurgence in growth seen in many other countries, and the outlook has been lackluster ever since.

But we are entering the crunch phase, where China needs to respond forcefully, or face the prospect of a protracted debt-deflation. The signal is coming from falling government yields. They have been steadily falling all year, at a faster pace than any other major EM or DM country. Indeed yields have been rising in almost every other country.

That’s a problem for the yuan. The drop in China’s yields is adding pressure on the currency. Widening real-yield differentials show that there remains a strong pull higher on the dollar-yuan pair.

The question is: will this prompt a devaluation in the yuan? The short answer is less likely than not, but it can’t be discounted, and the risks are rising as long as capital outflows continue to climb.

We can’t measure those directly in China as the capital account is nominally closed. But we can proxy for them by looking at the trade surplus, official reserves held at the PBOC, and foreign currency held in bank deposits. The trade surplus is a capital inflow, and whatever portion of it that does not end up either at the PBOC or in foreign-currency bank accounts we can infer is capital outflow.

This measure is rising again, as more capital typically tries to leave the country when growth is sub-par, as it is today.

So far, China appears to be managing the decline in the yuan versus the dollar. USD/CNY has been bumping up against the 2% upper band above the official fix for the pair. But China is stabilizing the yuan’s descent through the state-banking sector. As Brad Setser noted in a recent blog, the PBOC has stated that it has more or less exited from the FX market. Instead, that intervention now takes place unofficially using dollar deposits held at state banks.

China has plenty of foreign-currency reserves to stave off continued yuan weakness (more so than is readily visible, according to Setser), but there is always the possibility policymakers decide to ameliorate the destructive impact on domestic liquidity from capital outflow by allowing a larger, one-time devaluation. There is speculation this is where China is headed, and that it is behind its recent stockpiling of gold, copper and other commodities.

However, there are risks attached to such a move, given it might be detrimental to the more normalized markets that China covets in the name of financial stability, as well potentially prompting a tariff response from the US.

A devaluation is a low, but non-zero, possibility that has risen this year. Either way, the drop in bond yields underscores that China will soon need to do something more dramatic to avert the risk of a debt deflation.

In the past, the current rate of decline in sovereign yields has led to a forthright easing response from China, with a rise in real M1 growth typically seen over the next six-to-nine months.

But M1 growth in China has singularly failed to bounce back so far despite several hints that it was about to. This is likely a deliberate policy choice as rises in narrow money are reflective of broad-based “flood-like” stimulus that policymakers in China have explicitly ruled out as recently as January, in comments from Premier Li Qiang. Policymakers are laser-focused on not re-inflating the shadow-finance sector, which continues to be squeezed.

Shadow finance led to unwanted speculative froth in markets, real estate and investment that China does not want to see reprised. But its curbs have been too successful. Credit remains hard-to-get where it is needed most, typically the non state-owned sectors.

The slowdown this fostered was amplified by China’s response to the pandemic. Rather than supporting household demand, policymakers in China supported the export sector, leading to a surge in outward-bound goods.

Stringent lockdowns prompted households to become exceptionally risk averse, increasing their savings, and being reluctant to spend even after restrictions were lifted, lest the government decided to paralyze the economy again at some future time.

This also caused the real estate sector to implode, prompting multiple piecemeal easing measures to support housing prices and indebted property developers, to little avail so far: leading indicators for real estate such as floor-space started remain muted or weak, while the USD-denominated debt of property companies continues to trade at less than 25 cents in the dollar.

China has a large and growing debt pile that is only set to get worse as its demographics continue to deteriorate. The alarming chart below from the IMF projects public debt (including local government financing vehicles) in China to accelerate way ahead of that in the US in the coming years, to around 150% of GDP by the end of the decade. Total non-financial debt is already closing in on 300% of GDP.

Source: IMF

This raises the risk of a debt-deflation, when the value of assets and the income from them fall in relation to the value of liabilities. Debt becomes increasingly difficult to service and pay back, leading to lower consumption and investment, entrenched deflation and derisory growth that is difficult to escape.

Woody Allen once quipped that mankind is at a crossroads, one road leads to despair and utter hopelessness and the other to total extinction. China’s choices are not yet that stark, but the longer it waits to deliver an emphatic response to its predicament, they may soon become that way.

Tyler Durden Thu, 04/25/2024 - 10:30

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Experts call for global genetic warning system to combat the next pandemic and antimicrobial resistance

The Covid-19 pandemic turned the world upside down. In fighting it, one of our most important weapons was genomic surveillance, based on whole genome sequencing,…

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The Covid-19 pandemic turned the world upside down. In fighting it, one of our most important weapons was genomic surveillance, based on whole genome sequencing, which collects all the genetic data of a given microorganism. This powerful technology tracked the spread and evolution of the virus, helping to guide public health responses and the development of vaccines and treatments.

Credit: Struelens et al/Frontiers

The Covid-19 pandemic turned the world upside down. In fighting it, one of our most important weapons was genomic surveillance, based on whole genome sequencing, which collects all the genetic data of a given microorganism. This powerful technology tracked the spread and evolution of the virus, helping to guide public health responses and the development of vaccines and treatments.

But genomic surveillance could do much more to reduce the toll of disease and death worldwide than just protect us from Covid-19. Writing in Frontiers in Science, an international collective of clinical and public health microbiologists from the European Society for Clinical Microbiology and Infectious Diseases (ESCMID) calls for investment in technology, capacity, expertise, and collaboration to put genomic surveillance of pathogens at the forefront of future pandemic preparedness. 

“Epidemic-prone infectious diseases cross borders as fast as people and trade goods travel around the world,” said lead author Prof Marc Struelens of the Université libre de Bruxelles, Belgium, and formerly Chief Microbiologist at the European Centre for Disease Prevention and Control (ECDC). “A local outbreak today may become the world’s next pandemic crisis tomorrow.”

A vital head start

Most illnesses not seen before in humans are zoonoses—diseases found in animals that infect humans. Many diseases in animals are also treated with antibiotics and other antimicrobials that are used for humans. However, the widespread use of antimicrobials in humans and animals has led to resistance, as microbes evolve to survive. So we face two major, overlapping public health threats: one from new infectious diseases that are zoonoses, and one from rising antimicrobial resistance. Tackling these threats requires a collaborative One Health approach—championed by the World Health Organization (WHO)—which recognizes that human health is dependent on the health of our ecosystem. 

The answer, the scientists say, is to repurpose the increased genomic surveillance technology and capacity brought by Covid-19 to act as sentinels. Genomic surveillance that brings together public health agencies, veterinarians, and doctors need to be used to monitor human and animal diseases and antimicrobial resistance. By integrating epidemiological and clinical data from all these fields, we can get a comprehensive picture of pathogens and the risks they pose. 

“Pathogen genomic surveillance is a tool that looks at the interplay between antimicrobial selective pressure on populations of microbes and the adaptive evolution of those microbes towards drug resistance,” said Struelens. “It lets us detect the emergence and disentangle the transmission dynamics of super-fit, multidrug-resistant epidemic clones—’superbugs’. Genomic surveillance can help track both zoonotic and inter-human transmission of viral variants, strains of bacteria, and signs of drug resistance.”

Rapid response

Real-time genomic surveillance of pathogens can allow us to quickly detect new strains of resistant bacteria and new diseases making the jump between humans and animals, and to monitor their spread and evolution. 

This information can inform vaccination campaigns, help design targeted treatments, and guide public health responses—all of which could help prevent epidemics from flaring up.

Monitoring whole genomes would also allow us to study new diseases and the evolution of known diseases in more depth, to gauge how dangerous they are and identify countermeasures. In a globalized world, where pathogens travel quickly, genomic surveillance would make it possible to diagnose and treat infections equally quickly. 

Struelens and his colleagues highlight how new sequencing technologies, including long-read genomic sequencing, ultra-rapid sequencing, and single-cell sequencing, and artificial intelligence are helping to drive progress in surveillance in some parts of the world.

“There are many places where genomic surveillance is already providing crucial protection against the spread of disease,” said Struelens. “This includes foodborne infections in Europe, North America, and Australia, and epidemic viral diseases like avian influenza across many countries worldwide.”

A connected world

To make genomic surveillance effective, the scientists say, we need worldwide, accessible, real-time data. To achieve this, we need massive investment in capacity and expertise that takes into account different levels of infrastructure and training available around the world. During the Covid-19 pandemic, countries that already had access to genomic surveillance expertise and equipment had a major advantage in monitoring the pandemic and tailoring their response.  The authors provide a framework for the equitable implementation of globally interconnected surveillance systems that include lower- and middle-income countries.

“The article by Struelens et al. is a must-read for anyone interested in genomic surveillance as part of epidemic preparedness,” said Prof Marion Koopmans from the Erasmus Medical Center in Rotterdam, Netherlands, in an accompanying editorial. “The tools and ambition are there—the next step is to build equitable, collaborative surveillance infrastructures for future global health. The proposed WHO ‘Pandemic Treaty’ will be key, defining some of the rules of international engagement for better preparedness. Interesting times ahead!”

We also urgently need to invest in collaboration, to build bridges between disciplines in animal health, human, and public health, and to liaise between countries and health agencies. This will be critical to ensure not just that stakeholders can work together but that we reach agreements over data management and regulation, so that patients’ data is anonymized and safeguarded. 

“To ensure universal participation in collaborative systems of genomic surveillance around the world, our critical challenges are sufficient laboratory and sequencing capacity, the training of an expert workforce, and access to validated genomic data analysis and sharing tools within a comprehensive, secure digital health information infrastructure,” said Struelens. “Integrating epidemic pathogen genomic information with epidemiological information must happen at scale, from the local to global level.”


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Cidara buys back flu rights, sells antifungal and inks $240M PIPE

Cidara Therapeutics announced several sweeping moves on Wednesday afternoon to bring an influenza drug back in-house and raise money from investors to…

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Cidara Therapeutics announced several sweeping moves on Wednesday afternoon to bring an influenza drug back in-house and raise money from investors to back the program.

The San Diego biotech said it will reacquire the flu drug candidate, CD388, from Johnson & Johnson after a deal with the drug giant three years ago. J&J bet $27 million upfront on the program, plus milestones, at a time when the pharma company was rolling out its Covid-19 vaccine and the industry was looking at treating other viruses. Cidara says it thinks that CD388 can prevent “all strains of influenza A and B.”

To get the candidate through Phase 2b, Cidara has tapped investors for $240 million in a PIPE deal, reloading a balance sheet that showed cash and equivalents of $35.8 million at the end of 2023.

Jeffrey Stein

Last year, J&J pulled back some of its R&D work in infectious disease, and flu has proven to be a particularly difficult area of drug development that’s led to setbacks for other attempts to prevent flu. While J&J had elected to move forward with a Phase 2b for CD388, and paid Cidara a milestone, it later decided to divest the program, CEO Jeffrey Stein told Endpoints News in an interview.

Instead of watching the drug go to another pharma company, Cidara decided to buy it back.

“It was a competitive process with a program that is potentially transformational as a universal influenza preventative that is effective against all strains and in all people,” Stein said.

RA Capital Management, a firm that has participated in multiple similar deals in recent months, led the PIPE financing that backed the deal. Stein said the company has been speaking with RA since last fall. Bain Capital Life Sciences, Biotech Value Fund and Canaan Partners also took part.

Laura Tadvalkar

Cidara said the financing went toward the $85 million it owes upfront to J&J as part of the reacquisition. The new money will keep operations going beyond the Phase 2b topline data. Stein said the company will disclose more specifics on runway at a later date.

The Phase 2b trial will take place later this year in the Northern Hemisphere influenza season, and the money can help carry it through longer into the Southern Hemisphere influenza season if needed, Stein said in the interview.

Meanwhile, Mundipharma bought the rights to Cidara’s Rezzayo (rezafungin), which the FDA approved in March 2023. Mundipharma already had rights to the drug outside of the US and Japan, and it was approved in the EU and UK in December and January, respectively.

Cidara said the move is expected to save it $128 million thanks to reductions in CMC spending and clinical development, which includes a Phase 3 trial in China. It will also make way for Cidara’s expansion into oncology, Stein told Endpoints.

Alongside the pipeline adjustments, Cidara said board members David Gollaher and Timothy Franson will step down. RA Capital managing director Laura Tadvalkar will join the board with Ryan Spencer and James Merson, who was the previous global head of infectious disease therapeutics at J&J’s Janssen.

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Identifying proteins causally related to COVID-19, healthspan and lifespan

“[…] we identified multiple proteins affecting COVID-19 and aging.” Credit: 2024 Zhao et al. “[…] we identified multiple proteins affecting COVID-19…

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“[…] we identified multiple proteins affecting COVID-19 and aging.”

Credit: 2024 Zhao et al.

“[…] we identified multiple proteins affecting COVID-19 and aging.”

BUFFALO, NY- April 24, 2024 – A new research paper was published in Aging (listed by MEDLINE/PubMed as “Aging (Albany NY)” and “Aging-US” by Web of Science) Volume 16, Issue 7, entitled, “Using genetics and proteomics data to identify proteins causally related to COVID-19, healthspan and lifespan: a Mendelian randomization study.”

The COVID-19 pandemic poses a heavy burden on public health and accounts for substantial mortality and morbidity. Proteins are building blocks of life, but specific proteins causally related to COVID-19, healthspan and lifespan, have not been systematically examined. In this new study, researchers Jie V. Zhao, Minhao Yao, and Zhonghua Liu from The University of Hong Kong and Columbia University conducted a Mendelian randomization study to assess the effects of 1,361 plasma proteins on COVID-19, healthspan and lifespan, using large GWAS of severe COVID-19 (up to 13,769 cases and 1,072,442 controls), COVID-19 hospitalization (32,519 cases and 2,062,805 controls) and SARS-COV2 infection (122,616 cases and 2,475,240 controls), healthspan (n = 300,477) and parental lifespan (~0.8 million of European ancestry).

“We included both COVID-19 and healthspan and lifespan in the outcome, because COVID-19 which occurred in recent years reflects a new threat to longevity, whilst healthspan and lifespan reflect overall morbidity and mortality.”

The researchers identified 35, 43, and 63 proteins for severe COVID, COVID-19 hospitalization, and SARS-COV2 infection, and 4, 32, and 19 proteins for healthspan, father’s attained age, and mother’s attained age. In addition to some proteins reported previously, such as SFTPD related to severe COVID-19, the team identified novel proteins involved in inflammation and immunity (such as ICAM-2 and ICAM-5 which affect COVID-19 risk, CXCL9, HLA-DRA and LILRB4 for healthspan and lifespan), apoptosis (such as FGFR2 and ERBB4 which affect COVID-19 risk and FOXO3 which affect lifespan) and metabolism (such as PCSK9 which lowers lifespan). They found 2, 2, and 3 proteins shared between COVID-19 and healthspan/lifespan, such as CXADR and LEFTY2, shared between severe COVID-19 and healthspan/lifespan. Three proteins affecting COVID-19 and seven proteins affecting healthspan/lifespan are targeted by existing drugs.

“Our study provided novel insights into protein targets affecting COVID-19, healthspan and lifespan, with implications for developing new treatment and drug repurposing.”

 

Read the full paper: DOI: https://doi.org/10.18632/aging.205711 

Corresponding Authors: Jie V. Zhao, Zhonghua Liu

Corresponding Emails: janezhao@hku.hk, zl2509@cumc.columbia.edu 

Keywords: proteomics, healthspan, lifespan, COVID-19

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About Aging:

Aging publishes research papers in all fields of aging research including but not limited, aging from yeast to mammals, cellular senescence, age-related diseases such as cancer and Alzheimer’s diseases and their prevention and treatment, anti-aging strategies and drug development and especially the role of signal transduction pathways such as mTOR in aging and potential approaches to modulate these signaling pathways to extend lifespan. The journal aims to promote treatment of age-related diseases by slowing down aging, validation of anti-aging drugs by treating age-related diseases, prevention of cancer by inhibiting aging. Cancer and COVID-19 are age-related diseases.

Aging is indexed by PubMed/Medline (abbreviated as “Aging (Albany NY)”), PubMed Central, Web of Science: Science Citation Index Expanded (abbreviated as “Aging‐US” and listed in the Cell Biology and Geriatrics & Gerontology categories), Scopus (abbreviated as “Aging” and listed in the Cell Biology and Aging categories), Biological Abstracts, BIOSIS Previews, EMBASE, META (Chan Zuckerberg Initiative) (2018-2022), and Dimensions (Digital Science).

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