Fixed-income markets in the U.S. didn’t seem as spooked as equities by a looming default by Chinese property giant Evergrande, as investors look for clarity from China on a possible “remedy,” according to David Norris, the head of U.S. credit at TwentyFour Asset Management. 

“We’re so used to the Chinese authorities stepping into a distressed situation and providing support liquidity,” though it doesn’t appear they necessarily will in this case, Norris said in a phone interview Monday.

“Fixed-income markets are holding up OK,” despite showing signs of weakness, he said. “We’re still constructive on credit.” 

The iShares iBoxx $ High-Yield Corporate Bond ETF
HYG,
-0.35%

fell about 0.4% Monday, while the iShares iBoxx $ Investment Grade Corporate Bond ETF
LQD,
+0.31%

rose around 0.3%, according to FactSet data.

Meanwhile, the CBOE Volatility Index
VX00,
+7.97%

spiked to more than 28 on Monday afternoon, after trading below 20 for most of this month, according to FactSet data.

Amid the heightened volatility and stock-market slump Monday, Norris said he was “a little surprised” that prices of “safe haven” 10-year Treasury notes didn’t see an even larger rally. When bond prices rally, yields fall.

U.S. Treasury yields have been low, with investors being compensated less than the rate of inflation. The yield on the 10-year Treasury note
TMUBMUSD10Y,
1.310%

fell about 6 basis points Monday to 1.308%, the biggest daily decline since Aug. 13, according to Dow Jones Market Data. 

Read: Will Evergrande be China’s ‘Lehman moment’? Wall Street says no

“It’s not a good safe haven at 1.3% because I think the inflationary fears override the safe-haven element overtime,” said Norris. He sees inflation becoming “a more persistent problem,” with the U.S. consumer price index running at an annual rate of 5.3% based on the latest monthly reading for August. 

The Federal Reserve may be “behind the ball” on inflation, worries Norris.

He said Evergrande
3333,
-10.24%

may “throw a wrench” into the Fed’s policy meeting this week, as central bankers also consider global factors in their decision-making. After the meeting ends Wednesday, Norris said that he doesn’t expect the Fed to make any announcement about a timeline for tapering asset purchases.

But “we are fearful that they are making a policy mistake by not announcing tapering at this point in time,” Norris said. “If you’re going to do it, then do it now.”

U.S. stocks dropped sharply Monday as investors were rattled by Evergrande’s debt woes and a downturn in China’s property market. The S&P 500 index
SPX,
-1.70%

closed 1.7% lower in its biggest percentage drop since May 12.

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