Chinese CDS Worsens As Post-Year-End Liquidity Needs Spike
Submitted by Tyler Durden on 01/23/2014 21:43 -0500
The PBOC has injected around CNY 400 billion into China's banking system in the last week focused in the 7-day reverse-repo maturity. While this has been greeted with moderation of the spiking trend in ultra-short-dated funding costs, there is a problem still. With the CEG#1 Trust maturing on 12/31 coinciding with the farce that is the 'confess all mismatched sins' debacle that occurs every Chinese Lunar New Year, the need for liquidity through that maturity is becoming extreme (while shorter-dated not so much). 14-day repo is now at 7.2% - almost 300bps above 7-day repo (which matures before year-end). In fact, it seems those concerned about possible Chinese contagion effects are buying protection aggressively as 5Y CDS jumped over 5bps to 102bps - the widest in 7 months (since the credit crunch in the Summer). This is far from over...
7-day repo in less demand (or over-supplied for now) as 14-day repo (which will see banks through the year-end) are seeing rates spike...at its widest today banks were willing to pay almost 250bps to extend the reverse-repo from 7 to 14 days - quite a curve!!!
And Chinese CDS are blowing wider still...
Given our earlier note on the depositor problems at some banks, we though Nomura's comment very apt:
Media reports that some farmers’ financial cooperatives are failing to pay depositors may be another sign of rising financial stress in China as interest rates rise and economy slows, Zhiwei Zhang, China chief economist at Nomura, wrote in note yesterday.Continues to see credit defaults to occur in corporate, LGFV and shadow banking sectors in 2014The fact that CNR, a major official news agency in China, reported on co-ops may suggest govt stance on financial risks is to acknowledge problem, strengthen regulations
Bear in mind that China has injected more this week than in 2012's year-end and that this all has to be withdrawn in a week or so... (see blue bars) if the PBOC policy reforms are to hold any credibility at all...
Do you really think that will happen?
China's First Default Is Coming: Here's What To Expect
China's Liquidity Injection Did Not Calm All Its Credit Markets
Submitted by Tyler Durden on 01/21/2014 22:06 -0500
While last night's almost unprecedented reverse repo liquidty injection into the Chinese banking system stopped the bleeding of short-dated money-market rates briefly, the likelihood remains that a shadow-banking system default will occur: As CASS's Zhang noted:
- *CHINA TRUSTS AND SHADOW BANKING TO SEE DEFAULTS IN 2014: ZHANG
- *CHINA SHADOW-BANKING DEFAULTS WOULD BE GOOD THING: CASS'S ZHANG
Perhaps that explains why China's CDS spread remains at its highest since the summer credit crunch, barely budging on last night's cash drop. At double the default risk of Japan, China appears far from out of the contagion fire.
China's risk makes the US debt ceiling debacle look miniscule and while liquidity does not reign supreme in these markets, the last few months have seen considerably more activity in Asian sovereign CDS...
China's Academy of Social Sciences Zhang Ming had a few other things to say...
- *CHINA EXPORTS MAY NOT BE AS GOOD AS MARKET EXPECTS: ZHANG
- *CHINA MONETARY POLICY TO REMAIN RELATIVELY TIGHT IN 2014: ZHANG
- *YUAN APPRECIATION COMING TO AN END, CASS'S ZHANG MING SAYS
- *YUAN MAY WEAKEN AFTER REACHING 6 PER DOLLAR: RESEARCHER ZHANG
and typically is seen as yet another mouthpiece for the administration... so that won't please Schumer and his crowd...