China Will Suspend Open Market Operations Tomorrow In Response To Liquidity Freeze

Tyler Durden's picture

Merely minutes after reporting the third daily surge in the SHIBOR we see a Dow Jones update which confirms that this liquidity escalation is far more serious than a merely transitory jump in short-term lending rates. Per DJ: "China's central bank said Wednesday it will suspend its regular open market operation Thursday, in an apparent response to the tight liquidity conditions in the banking system." As a result of the just reported 7 Day SHIBOR hitting 8.81%, the highest since October 2007, the PBoC will not conduct regularly scheduled open market operations tomorrow when it offers three-month paper, to mop up excess liquidity in the country. "The PBOC sold CNY1 billion ($154.6 million) worth of one-year bills at 3.4019% in its operation Tuesday, after leaving the rate unchanged at 3.3058% for the past 11 weeks. On Thursday last week, the PBOC lifted the rate on its three-month bills by eight basis points to 2.9985%, the first increase on the three-month central bank bill yield since early April. "It is difficult for the central bank to find enough demand for its short-term bill offering amid the severe liquidity squeeze in the money market. If it persisted with the three-month bill offering tomorrow, the yield would jump again, adding pressure to the central bank's operating costs," said a Shanghai-based trader with a local bank."

Why is this important? Because as is by now well known, China is Europe's white knight, and Chinese banks, likely with the assistance of the PBoC, have been buying up European (and Japanese bonds). Yet will it be able to do so in light of the lock out of banks from overnight liquidity? This is currently unknown, although speculation that June inflation will be even higher than May's, likely have ominous implications for future liquidity as more rate hikes are imminent.

And if the liquidity freeze is already affecting open market operations, it is very much unclear what this means for general fund flows within the Chinese economy. One factor that can provide a brief respite is the maturity of CNY83 billion in bills and repos this week, which will inject some much needed liquidity in the market.

Keep a close eye on the SHIBOR: if China ends up needing Central Bank assistance in the unsecured lending market, it will destroy all credibility of the Chinese "White Knight" scenario.

h/t London Dude Trader

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slow_roast's picture

Why don't they just use their AMEX cards; that's what I did when I couldn't refi in 2007 and needed some cash to buy a new Diesel watch and ATV.

augie's picture

Diesel watches and ATV's? is that what the kids are spending their money on these days?

ZeroPower's picture

Hahaha +69.99 (or however much those "watches" are)

GeneMarchbanks's picture

No augie, they are banging each other before grade school and selling meth to rebellious rich kids. In doing so, they are generating GDP growth. Now if only we can somehow get this to emerge in Fed statistics.

I'll keep you posted on their uhmm... lets say... 'development'

snowball777's picture

You're such a 'member'...enjoy paying that annual fee, tardbiscuit.

Cognitive Dissonance's picture


Some crack are beginning to appear in the Chinese veneer.

SheepDog-One's picture

Wow bummer! Well I sure am glad everythings so peachy here in america with our magical levitating markets and no problems at all. Party on, S&P.

Going Loco's picture

I keep seeing the word "liquidity" everywhere I look, and not accompanied by the word "increasing".

SheepDog-One's picture

The 'liquidity' is the same stuff you find in a septic tank.

writingsonthewall's picture

Soon you'll be hearing the classic "liquidity crisis" - which is the new term for 'insolvency'


...then the banks fail and the politicians hunt for someone to blame (and consequently someone to pay) - which (again) will be us - the taxpayer.


We're at the stage where the only bailout available is from God himself - and he hasn't even sent down a representative for about 2000 years - the chances are slim.

dracos_ghost's picture

And why not? That meme worked before so the banksters could steal trillions.

Hell,  why invest when you can steal by gov't mandate.

Operative word in most of these reports -- "hoarding". There is no liquidity crisis. The banks and Multinationals are a bunch of divas demanding -- or bitch slapping, take your pick -- ridiculous consideration because of a handful of incompetent academics running the central banking system.

There has to be a quid pro quo eventually and these scumbags are going to have to let some of that cash crop they are sitting on see the light of day.


ZeroPower's picture

Stuck btw a rock and a hard place?

Offering tomorrow = SHIBOR increase. Question is, will no offering still increase SHIBOR?

Cassandra Syndrome's picture

Relax, Alpha Centauri can bail us all out when China goes tits up.

THE DORK OF CORK's picture

Fuck China and its various siamese twins - I want cheap coal again.

Greeny's picture

What is the problem? Printing press get broke?

It's hard to pump "Liquidity" in Physical GOLD, but in Electronic

Money world? Common, just add couple zeros at the end and it's done.

SheepDog-One's picture

Its all about physical gold now? Hows that 'long Euro to 1.46' trade goin?

Greeny's picture

And? What is your story, Watch it after Bernank speech.

I have Gold and mostly Silver too, but I'm trading stocks

and will continue to do so. And I do not buying neither

Silver or Gold at those levels.. I remember how it's end up

in 2008.. Kaaabom and 8$/oz.. Hope not gonna happened this

time, as too much money been printed.

EUR by the way over 1.44 watch it after Bernank

"Extended period of time" and possibly some hints on further

printing tactics.. Chinese buying Euros. And EUR Debt.

writingsonthewall's picture

Why do all the 'clever traders' feel they need to justify their 'clever trading skills' by lecturing us all on how they are making a killing...which of course we have to take their word for - because there's no way to prove it.


Did I mention I cornered the market in VW a couple of years ago? - and I saw teh credit crunch coming - I made such a killing, I now spend my time browsing the blogs of the financial world proudly telling anyone who will listen.


I went to school with one of those 'child prodigys' - he was a mathematical genius. About 5 years ago I saw on his facebook page he had an entry where he smugly reported "now retired from FX trading, sipping cocktails on the beach for the rest of my life"

Quite amusing - although not nearly as amusing as when I met someone who knows him last weekend and discovered he's now inside for securities fraud. Clearly his genius meant he didn't feel he needed to stay within the rules - or maybe he thought rules were for the little people.


In a world of bullshit - the truth will cause carnage.....and it's already starting.

Greeny's picture

You don't have to be too clever to Buy MSFT at $24 and sell

later at $27 or so.. And it's safe too.. Wanna check.. OK,

return on December and see where MSFT is.. Couple points not much,

but it has Div too. NO, I do not day trade.

With Internet, pro tools and Unemployment 10% or

more, this is the only choice some people have to create

any source of income even if you don't like it.

StychoKiller's picture

Share and Enjoy,
Share and Enjoy,
Journey through life
With a plastic boy.
Or Girl by your side,
Let your pal be your guide.
And when it breaks down
Or starts to annoy
Or grinds when it moves
And gives you no joy,
Cos it's eaten your hat
Or had sex with your cat
Bled oil on your floor
Or ripped off your door --
You get to the point
You can't stand any more --
Bring it to us, we won't give a fig
We'll tell you, 'Go stick your head in a pig'.


Playing/trading with HFT robots, even those with the GPP (Genuine People Personality) feature, can result in death or dismemberment.


gigeze787's picture

Can investors/speculators buy Chinese debt through an ETF, mutual fund or similar liquid vehicle?

Going Loco's picture

Why would you want to buy?

FranSix's picture

No matter.  The apparatchiks all have their Patek Phillipe watches and can let the whole financial sector collapse.

Robslob's picture

Ben Bernanke: "Its All Going According to Plan!"

RobotTrader's picture

CYB had its biggest volume up day in history yesterday.

Looks like they could unpeg any day.

TonyV's picture

They are expecting a 5.5-6% YoY inflation. They have to unpeg at some point.

FranSix's picture  CYB vs. $IRX


ZeroPower's picture

Some smart money made rather large bets on a drop in the CNYUSD.

rsnoble's picture

Maybe they should just force buyers at gunpoint and threaten to kill them like they do with everything else.

SheepDog-One's picture

Confused....are you talking about China or the US?

mess nonster's picture

Something's fishy here...where'd the money go? I have read this article several times now, and remain mystified. There's a black hole somewhere (inflation?). It must be right in front of my eyes, but I can't see it. Someone, please point out the obvious...

Catullus's picture

What? Using impaired European bonds as collateral in repo transactions? There can be nothing wrong with that.

twinshot's picture

Go short AUD and hope the commies mismanage this situation as only they can.

PaperBear's picture

financially stable, not.

PulauHantu29's picture

What is the effect of a "liquidity freeze?"

Well, look what happened here in the USA when we had one....stock market plunged 40-60%.

snowball777's picture

It turns real tigers into (asset-backed) paper ones!

mess nonster's picture

What's freezing it up? Junk Euro bods? Worthless US Treasuries? A slow, sickeing realization that China, after all, is the world's biggest sucker (literally), analogous to that nerdy kid who wants to be in the "in" crowd so bad, he's a perfect patsy for a cruel practical joke, and left holding the bag, while all the guys (West) snicker and poke fun at the poor bastard?

PulauHantu29's picture

So true....Wall Street "experts" sold China hundreds of millions of Blacstone (or somehting like that) right before it plunged 60%.

Hey, "there's a sucker born every minute."

China should stick to buying resource compoanies and physical resources. The Goldmans of Wall Street use them to dump their's called.....'dumb money."

mess nonster's picture

Benny B. tells China- "You've always been our bitch- we let you get uppity just to bring you down! Lick my boot!

Tramp Stamper's picture

Yeah its all funny until the ICBM's start flying

hungarianboy's picture

yeh I don't get it neither. ok liquidity freeze, and they Will Suspend Open Market Operations Tomorrow. Is the market goign to crash or what? I can't make anything out of this yet. pls explain what can be expected for tomorrow.



Smiddywesson's picture

Nothing new here. 

France played the currency manipulation game during the post WWI era.  Their banks were full of gold and their economy got rick selling everyone else cheap stuff.  When the recession hit, everyone thought France would be the engine of growth and pull them all out of the mud.  This was the identical fantasy created around China. Guess what, France went down with the ship too and had to devalue their currency like everybody else.

A business cannot flourish without customers.  China is not immune to the global recession, it's just immune to our inquiries about what is going on in China, and it is not good.  There's a reason they got rid of Google in China, and it has nothing to do with market share.  It's leaders are afraid the Century of China dream will be washed away by civil unrest.  There are over 160 languages and major dialects in China.  The only thing holding it together was the promise of a better tomorrow and the point of a bayonette.  When that promise is shown to have been false, they are going to need a real big war to hold the country together and drain it of excess men who have no chance of finding a bride.

Smu the Wonderhorse's picture

So is FXI about to crash?

MrPoopypants's picture

This is occurring just as the Fed is ceasing liquidity injections...And central banks work in concert... Looks like ZH's thesis about a crash before the next QE wave is increasingly likely, as now the Chinese are seen to be cooperating. Push, pull, push, pull; crisis, reaction, solution; order out of chaos.