• Ernie Diaz

Fee Circus

Bonds...plain bonds, are twice as enticing in China, where government-issued debt offers above 3% yields, compared to the U.S.' current 1.57. Alas, the first law of fertile Chinese grounds is that a Battle Royale be contested for territory. The second law is that the government will eventually sweep in and issue ground rules to keep the feud fair, and the sector able to develop. The third law is that the NYT will report it as an authoritarian crackdown.

We're watching the second law make the books, as the National Association of Financial Market Institutional Investors issues new regulations to quell the war of attrition among China bond underwriters.

"What's wrong with brokerages only charging .0001% of funds raised? Maybe they just care about banks and corporations having liquidity, not their bottom line," says Frankie Freemarket.

"Ludicrously low fees not only point to conflicts of interest, but also stifle development of the bond industry," says Edward Lehman. "China needs a diverse range of bond market providers of all sizes, not just a few giants who can charge nominal fees and make it up with hidden costs and backroom deals. So we're advising clients interested in China's fixed income opportunities that these new regulations are an overall positive development."

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