Why Hong Kong has become the worst-performing major stock market

There are many disconnects in financial markets. One of them is Japan’s benchmark 10-year bond yield, which currently stands at just 2.7 per cent despite the country’s large public debt burden – more than 240 per cent of economic output.Although Japanese bond yields have risen sharply in the past three years, the 10-year yield is slightly lower than that of Germany, whose government debt as a percentage of economic activity is around one-quarter the size of Japan’s.Another anomaly is the outperformance of the debt of non-investment grade companies. The credit spread, or risk premium, on junk-rated bonds is close to its lowest level since 2007 despite the prospect of higher interest rates, acute geopolitical risks and rising defaults in the increasingly vulnerable private credit market.