Friday, June 14, 2013

Overnite Data , News and views - Keep your eyes on China ( liquidity crisis brewing ) , as much as Japan in Asia

http://www.zerohedge.com/news/2013-06-14/chinese-cash-squeeze-leads-first-failed-liquidity-draining-debt-auction-failure-23-m


Chinese Cash Squeeze Leads To First Failed Liquidity-Draining Debt Auction Failure In 23 Months

Tyler Durden's picture
Submitted by Tyler Durden on 06/14/2013 08:25 -0400



It was less than 24 hours after we warned that the Chinese "liquidity shortage" had hit an all time high, as a result of the PBOC's intransigence to inject liquidity into a financial system roiled by Bernanke's and Kuroda's offshore hot-money flows, that things got worse when early in the Chinese trading session we learned that the PBOC experienced its first liquidity drainage failure in 23 months, when the Chinese Finance Ministry failed to sell over 30% of the debt offered at auction - the direct result of a cash squeeze currently ravaging the country's banks.
The ministry sold 9.53 billion yuan ($1.55 billion) of 273-day bills, less than the 15 billion yuan target, according to Chinabond, the nation’s biggest bond-clearing house. Agricultural Development Bank of China Co. raised 11.51 billion yuan in a sale of six-month bills last week, less than its 20 billion yuan goal.
We explained the reasons for this previously but, once again, here is why China continues to find itself between an inflationary, foreign-liquidity sourced rock, and a contracting and failing credit transmission mechanism hard-place.
Banks are hoarding money to meet quarter-end capital requirements at the same time as capital inflows are easing amid a worsening economic outlook and speculation the Federal Reserve will rein in monetary stimulus. The seven-day repurchase rate, a gauge of interbank funding availability, has more than doubled in the past month and the Hang Seng China Enterprises Index (HSCEI) of shares slid today for a record 12th day in Hong Kong.

“The cash crunch is curbing demand for bonds,” said Chen Ying, a fixed-income analyst at Sealand Securities Co. in Shenzhen. “The crunch may persist if the central bank doesn’t come out to inject more capital into the financial system. If it lasts longer, it may affect issuance of both government and corporate bonds.”

The average yield at today’s bill sale was 3.76 percent, according to two traders who are required to bid at the auctions. That compares with a 3.14 percent rate yesterday for similar-maturity existing securities, according to data compiled by Chinabond. The ministry’s last failed auction was a sale of 182-day bills in July 2011.
The PBOC has been very unwilling to inject any incremental liquidity in a long time, halting reverse-repo based injections in February 7.
The People’s Bank of China added a net 92 billion yuan to the financial system this week, down from 160 billion yuan in the five days through June 7, according to data compiled by Bloomberg. The monetary authority refrained yesterday from draining cash for the first time in three months as money markets reopened after a three-day holiday. The last time it used reverse-repurchase agreements to inject funds was Feb. 7.

“If the central bank doesn’t conduct reverse-repurchase agreements or short-term liquidity operations to inject capital, cash supply will stay tight for the rest of the month,” said Cheng Qingsheng, a bond analyst at Evergrowing Bank Co. in Shanghai.
What is more disturbing is that China also stated that this may not change much any time soon as a result in a downshift in growth (and inflation) strategy, which is always dictated via the monetary, and credit channels. So while we expect that the PBOC may surprise the world with an RRR, or interest rate cut, as we speculated yesterday, whether or not China does this is another matter.
We are confident (or at least hope) the PBOC realizes that the trade-off to a slowing economy is a banking system which is unsustainable if the credit expansion to which the local banks are used, continues to "taper."
And the flipside is that if and when it finally gives in and resumes injecting liquidity, then the people, well-conditioned from years of inflationary fears, will line up dutifully in calm, cool and collected lines to buy up that old barbarous relic: gold.
Those who wish to keep track of Chinese liquidity first hand, best visualized by various SHIBOR tenors, can do so at the following site. And while ultra-short term liquidity conditions have improved modestly in the past 3 days, SHIBOR beyond a 1 month maturity continues to rise.









http://www.zerohedge.com/news/2013-06-14/thursday-may-be-new-tuesday-friday-just-friday-now


Thursday May Be The New Tuesday, But Friday Is Just Friday (For Now)

Tyler Durden's picture
Submitted by Tyler Durden on 06/14/2013 06:59 -0400




Thursdays may be the new Tuesdays (if only this week), but so far Fridays are still just Fridays, and no mysterious overnight levitation is here to open the market 0.5% higher. The Nikkei 225 retraced a fraction of Thursday’s losses overnight as the positive close on Wall Street and a dovish interpretation of Hilsenrath’s WSJ piece yesterday allowed the Japanese indices to recover from the worst levels of the week. USD/JPY has pared Thursday’s bounce and trades lower as the Bank of Japan’s minutes showed one member of the board proposing the advantages of limiting the bank’s QQE program to just two years in order to avoid financial imbalances. Overnight in China, as we warned yesterday, the liquidity situation got even worse, when the PBOC's attempt to drain liquidity failed to sell some 30% of the planned 15 billion yuan in 273-day bills (more on this shortly), leaving the banks screaming Uncle and on the verge of a full-blown liquidity crisis: we expect rumors, and news, of more banks failing to roll over overnight liquidity to hit the tape shortly.
The European morning has picked up where the US left off, with global stock futures trading relatively horizontally with the exception of the Italian FTSE-MIB, falling subject to light profit-taking following the late-week rally. Core fixed income markets continue to add to their gains in the wake of Hilsenrath’s QE-affirming article, with peripheral debt also firming; SP/GE and IT/GE yields spreads contract in reaction to Spain’s BBB- affirmation at S&P and Spanish banks’ ECB borrowing figures falling for the ninth consecutive month.  Nokia shares surged higher following reports citing sources that Siemens approached PE firms about possible deal for Nokia Siemens Networks.
Keep an eye on crude: US concluded Syria used chemical weapons against rebels. US President Obama has authorized providing some US arms for Syrian rebels as part of a new package of military support to the opposition. US Senator McCain said the red line has been crossed in Syria and that he hopes Obama will establish Syria no-fly zone. Putin aide says Russia "not yet" discussing sending S-300 missiles to Syria in response to expanded US military support for rebels.
The US calendar rounds off the week with PPI figures for the month of May followed by June’s advanced University of Michigan Confidence Survey. The high freqs will know just how confident the broke US consumers are in the stock market about 2 seconds ahead of everyone else - Reuters' invoice is in the mail.
For the attention challenged, here are the key news events in bulletin format courtesy of Bloomberg:
  • Treasuries rise as JPY extends gains vs USD, touching 94.43 overnight; market focus shifting to next week’s FOMC rate decision and Bernanke press conferece.
  • Recent selloff in Treasuries, credit products, peripheral EU and EM debt driven principally by change in perception of Fed’s reaction function, with tapering of asset purchases and rate increases now expected sooner than previously
  • The Bank of Japan should specify a two-year limit for its  unprecedented monetary easing to help quell bond-market volatility, according to one of the central  bank’s board members in minutes of May 21-22 meeting
  • Japan to resume selling inflation-linked bonds in October, resuming issuance after a five-year hiatus
  • Japan sold JPY2.5t of 5Y notes drew a bid-to-cver of 4.36, the highest since Nov. 13
  • China’s Finance Ministry sold 9.53b yuan of 273-day bills, less than 15b yuan target; the first failed auction in 23 months on a cash squeeze that threatens to exacerbate a slowdown in the world’s second-largest economy
  • Global regulators may start overseeing currency rates in a widening response to benchmark-rate setting scandals that began with revelations on the manipulation of Libor, according to two people familiar with the matter
  • Bank of England deputy governer Paul Tucker intends to leave, plans to spend time in academia in the U.S.
  • Thousands of technology, finance and manufacturing companies are working closely with U.S. national security agencies, providing sensitive information and in return receiving benefits that include access to classified intelligence, four people familiar with the process said
  • The U.S. will provide small arms and ammunition to the Syrian opposition amid recent battlefield setbacks by rebels and after saying it confirmed that Bashar al-Assad’s forces used chemical weapons in the civil war
  • Sovereign yields mostly lower. Nikket gains 1.9%; Asian and European stock markets rise, U.S. equity index futures decline. WTI crude gains, metals lower
SocGen summarizes the notable macro highlights:
US retail sales were slightly higher than expected, and initial jobless claims were down (their lowest since early May). This helped limit buying pressure on the EUR/USD and slowed the push to sell Treasuries. However, it was not enough to reassure investors completely, as the USD/JPY continued on a downtrend.
Other US economic indicators are being reported today. Focus is likely to be on Industrial Production, and above all, the University of Michigan Confidence Index. Another increase in consumer confidence would lend weight to the scenario of a domestic demand recovery in the US. Will that suffice to bring attention back to US domestic factors and overshadow global risk aversion? Unfortunately, we doubt that investors will commit to new directional positions prior to next week's FOMC.
The current general sell-off shows how much the markets are focusing on the upcoming decisions of the main central banks. Doubtless the central bankers are aware of this. Current uncertainty on the forthcoming monetary policies of the G4's central banks probably needs to be cleared up to stop the haemorrhage and trigger more sustainable trends.
* * *

http://www.zerohedge.com/news/2013-06-13/us-bonds-panic-mode


US Bonds In "Panic" Mode

Tyler Durden's picture
Submitted by Tyler Durden on 06/13/2013 21:40 -0400




Based on Credit-Suisse's Panic-Euphoria model of risk appetite, US bond markets are on the verge of the short-term capitulative "Panic" mode. Each time we have reached this level of 'selling' in the last 6 years, Treasury yields have compressed significantly. At the same time, equity risk appetite remains bearish and US credit risk appetite has resumed its decline (but relative to Treasuries they are significantly over-sold). Not a pretty picture...
Bonds hit "Panic" levels of risk appetite...

but Equity risk appetite drifts bearishly...

and Credit risk appetite signficantly weaker...

but the sell-off in High-Grade and High-Yield bonds has been remarkable relative to historical precedent...
As Citi notes,
Investors fear the 1994 redux trade, are looking at ways to short markets that may be vulnerable to rising rates, including credit. But in total return terms the credit space has already suffered quite dramatically. The chart below shows that the high-grade and high-yield markets are down 3.2% and 1.7%, respectively, since the Treasury backup began in early May, which is far more severe than what normally occurs when rates rise(annualized long-term average of +0.1% and +11.4%, respectively).


It may not be fully priced in yet, but at this point the rates trade may really boil down to how quickly Treasury yields rise further.

Charts: Credit Suisse and Citi

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