China's Bailout Of Europe Has Started, As The PBOC Joins The SNB

Tyler Durden's picture

As of this morning China has migrated from a purely symbolic European White Knight to an actual one. While overnight trading action was set to recreate the panic from September 15, 2008, suddenly something changed. That something? China. Per Dow Jones: "Bunds give up nearly all of Tuesday's early gains with the September contract just 12 ticks higher on the day at 129.26 after making a spike at 130.91, a gain of 177 ticks from the open. The latest, unconfirmed, rumor pushing bunds lower is that China is behind the supposed ECB enquiries for peripheral debt prices. As yet no official confirmation from market sources of any central bank buying. In the cash space, the 2-year yields 1.235% and the 10-year 2.65%." As China has been actively buying up EURs over the past two months and is now massively underwater on a cost position that may be in the hundreds, but is certainly in the tens of billions of dollars, the ongoing collapse in the EUR currency will now force the PBOC to resort to increasingly more drastic measures to protect its strategic investment. The irony of this is that the Swiss National Bank, which this morning had to watch in horror as the EURCHF plummeted to 1.15 and for the longest time has been fighting the Fed (which loves a strong EUR) has been joined by the PBOC, which is now also trading on its behalf. The First Central Bank War is now officially on.

And some other observations on why nothing can prevent the rout, since the euro zone is now actively contemplating a Greek bankruptcy:

The euro zone acknowledged for the first time some form of Greek default may be needed to cut Athens' debts, but markets seized on the lack of a deadline for action and a lukewarm response from the IMF to heap pressure on Italy and Spain.

Dutch Finance Minister Jan Kees de Jager said on Tuesday euro zone finance ministers had effectively accepted that if they wanted to have the private sector involved in a second bailout of Greece, a selective debt default was likely, despite the European Central Bank's vehement opposition to such a move.

"We have managed to break the knot, a very difficult knot," he told reporters as he arrived for a second day of talks.

Asked about whether a selective default was now likely, he replied: "It is not excluded any more. Obviously the European Central Bank has stated in the statement that it did stick to its position, but the 17 (euro zone) ministers did not exclude it any more so we have more options, a broader scope."

Participants said both a buy-back of Greek debt on the secondary market and a German proposal for a bond swap for longer maturities were under consideration after a complex French plan to roll over bonds made no headway.

Both would likely be regarded by ratings agencies as a default, or at best a selective default, which could have profound repercussions for financial markets.

The lack of immediate action and the increased likelihood of some form of default sent European bank stocks and debt markets into a spin and propelled the euro sharply lower against the dollar.


h/t London Dude

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chistletoe's picture

the Chinese are a fast study.


they've been watching Bernanke export inflation,

they see how its done,

now they do it themselves.

The race to the bottom is on like Donkey Kong

ratso's picture

China is willing to put at risk a huge amount of money (read hundreds of billions) in order to protect its European market and keep a third economic force financially viable in the world.  The question is "How big is this rock that China is tying to its financial leg before it throws this financial rock into a financial ocean of unknown depth?"  Stayed tuned to see if China suddenly gets pulled overboard.

Ahmeexnal's picture

Too little much too late.
China should sit out the collapse of the eurozone and just pick up the remaining scraps.

"I was in Vienna. I had with me an
Austrian chauffeur, Max his name
was, he spent time in the camps.
We were looking at these Viennese
cleaning up the bomb damage,
scavenging for rotting food, butt
ends, anything. I said, 'To think
a million of these people came out
to welcome Adolf on the day he
entered the city, a million of
'em, and now look at 'em.' "

Cassandra Syndrome's picture

Central Bank Wars Bitchez

The Limerick King's picture

The Central Bank war has begun

World Oligarchs having some fun

The end will come soon

When they buy out the moon

And they auction off tracks of the sun

Urban Redneck's picture

You can't win by only playing defense.  China should shit $10B+ on the long end of US treasury curve to get the other central planners' attention, or bypass the planners and go straight to the NY debt market scare both the FED and the bankers behind the FED themselves.

Internet Tough Guy's picture

China is buying the currency that will do best in a freegold environment. Smart move.

Zero Govt's picture

"Smart move" by China? Nah

This is the Dumb Virus, afflicts all Govt staff their first day in the public sector. We're now dealing with a mutant strain of the same, the Dumb & Dumber Super-Virus now widespread and growing like wildfire in all global Govts..

Chinas is no exception in fact throughout their history they've shown how well the Virus takes hold out there in the East and here we are again, losing money chasing the Euro-Disease (getting in debt following the vacuous idealogy politicians know what's best to spend others wealth on) down the drain

The toilet flush is ready for Chinas Govt just as it is for Europes and Americas Govts

RichyRoo's picture

Australian iron ore producer settles closes deal denominated in yuan

"FMG today made its first yuan-denominated transaction in China, a step toward settling iron-ore contracts in the local currency, its chief operating officer said today."

freethinker4now's picture

When do I cash in some of my Gold? Ahhh decisions decisions

Bob's picture

Funny!  Silver, on the other hand, is really chapping my ass. 

DosZap's picture

Bob, did you not get the office memo?.

it's an Industrial Commodity!.

Jambo Mambo Bill's picture

IMF bailouts Latin America 80s China style.

kaiten's picture

Gee, Tyler, you must be joking when saying that FED loves strong EUR. Or are you just that naive? Tell me, how can FED start QE3 when euro is at 1.40? They have to push it down to 1.20 before QE3 starts. And that´s the whole story about this euro "collapse". Funny how no one cared about Italy 3 months ago, and when QE3 starts, no one will care about it again. So tell us. Are you in FED´s pocket or are you just that naive? I wonder.

Tyler Durden's picture

What will be the first outcome of QE3?

But yes you are spot on. Unlike ALL other central banks, the Fed is the only one that wants a strong currency.

kaiten's picture

What will be the first outcome of QE3? Simple. Dollar plunge. Can FED/US afford a dollar plunge at 1.40?  No. Can it at 1.20? Sure. Now, look when this eurozone scare began. As QE2 closed. Coincidence? Depends on the level of ones naivety.

In the same way as rating agencies assisted in housing bubble, they are now assisting in moping it up. And what´s better for EUR plunge, then euro-bashing? I cant believe you dont see this bankster mafia policy.

Gandalf6900's picture


U might have a very good point

GeneMarchbanks's picture

 'Tell me, how can FED start QE3 when euro is at 1.40? They have to push it down to 1.20 before QE3 starts.'

Hmmm... Tiger, ... Obama is president so... Yes We Can! Dollar/Euro numbers are meaningless, whether 1.20 or 1.50. OT2 or QE3 or Trapped Wind Syndrome is a lock. Only when not if.

kaiten's picture

Euro/dollar cross is meaningless? How about correlation between oil and EUR/$ and then, by extension, oil and household consumpiton, aka GDP?

GeneMarchbanks's picture

Poor Hungarian/Polish/Czech mortgage owners. Next up for the EURCHF: parity.

DosZap's picture

 EURCHF: parity.

Now that's the JOKE of the century..............

What's worthless, and trades even up w/ the strongest currency on the planet........

Makes sense.

Sudden Debt's picture

some form of Greek default

Let's sack the private funds and make sure those honest bankers get their share.

I do wonder how many forms of default there are...


chump666's picture

china won't do jack, they will need to narrow CDS spreads fast...thats the challenge, but the market is kinda sick of china posturing. china intervention only causes oil to be bid again which means just sucks in more inflation.

Tyler Durden's picture

CDS are now completely irrelevant. ISDA shot itself, and the ECB, in the head after it made it clear that there will be no default determinations on European countries, making long position hedging thru CDS impossible. Therefore, the only way to "hedge" is to sell cash bonds.

Unintended consequences 101.

HITMAN56's picture

asia bonds got lifted going into the close of the session...Xover pushing wider (+18) as is Main (+5.875)

oogs66's picture

do you have the isda thing for this?

citta vritti's picture

try these from the ISDA website:

It’s all Humpty Dumpty differentiation based on definition ("when I use a word ...") but buried in the video discussion underscoring that the direct payout consequences of a CDS event on Greece are not so big, because of hoped for recovery rates on the underlying and previous mark-to-market postings of collateral, is the kicker that an CDS restructuring event of default would trigger accounting rules on debt impairment, forcing bank and other holders to write down the assets, to market or myth depending on the audit firm.

decon's picture

What do you think will be the half life of this intervention.  I sold my short positions in the premarket.

john milton's picture

Les Rencontres Economiques d'Aix-en-Provence
8-9-10 july 2011
Mario Draghi on currency wars

Oh regional Indian's picture

Truth is it's not China backstopping the EU.

It's the cartel behind backstopping the EU. Is that not obvious? That the same people pull the major strings? 

EU middle class is older than American, so they will be sheared first.

The great middle class shear-down of 2011.

Bacstopping only creates constipated entities.


Sudden Debt's picture

I'M AM LANCELOT!! said the chinese dude KNIGHT OF LOUND TABLE!!





The Limerick King's picture

Just look at the junks for SD

So suddenly hated is he

Once thought wise, now a punk

All his comments are junk

There's no one more vile than thee!

camoes's picture

LMAO +100000

I'll take the General Tso and my friend the Kung Pao chicken

johny2's picture

SNB and PBOC are on opposing sides in this game. 

rsnoble's picture

So what's the kindergarten version of this article im too damn hungover for all this crap.  I take it something about an insolvent nation that just hasn't comes to terms with it's own problems and thus is filthy rich(china) bailing out a bunch of poor helpless bastards on the brink?  Huh, another day in crazy town.

Rider's picture


I thought Chinese were smart people, but they are making line to be the ultimate bag holders.

Idiocy do not know borders.


Zero Govt's picture

Idiocy does not know borders or have limits in Government

there fixed it 4 ya

equity_momo's picture

If you are disillusioned at the dumb fucks running our future , just be thankful you arent Chinese and have to put up with those monumental morons in the Politburo. China a white knight? Please.  Theyre panicking just to prevent a social breakdown in their own borders and they think buying Euro debt is part of the solution.  Little do they know theyre going to get the mother of all monkey fuckings.  Their hard asset purchases are a drip in the bucket for a country their size. Theyre double fucked.

camoes's picture

No they are not. They already own the US and now they will own EU. Bow down to your new master overlords. They keep what they kill...

equity_momo's picture

And how do you work that out? When the US and EZ default and China ask for some "assets" the answer will be "tough luck Mr Won , buyer beware"

China will just have to suck it up. They arent killing anyone.

The Chinese economy is going to collapse as the old masters of monetary shennanigans bend them over the table.

Thats how you rebalance the US economy and create jobs.

Any talk about deficits , stimulus and tax is just a huge fucking waste of time until you bring the hammer down on Asia because even with their stupidity they cant afford to keep funding US deficit spending ad infinitum with a permanently broken economic model - the question is , will the US politicians listen to the will of the people and do this at the expense of some short term corporate profits.

D-Day is nearing.  All roads lead to default and a global economic collapse , its how you position to come out the other side that counts , not how long you can extend the pain.

the not so mighty maximiza's picture

China will just have to suck it up. They arent killing anyone.

Yeah, ok, sure

Don't forgot history,  Sino-Indian Border Conflict , Korean War, they can do allot fo killing actually.


equity_momo's picture

You think China will invade Spain and Italy? Then the US? Dont think so.  They care about their doorstep. When was the last time China invaded a country that wasnt within their immediate geopolitic sphere?

Or are you saying get ready for a few billion Chinese on rafts washing up on Long Beach?

snowball777's picture

Have you ever been to SF? They already have a foothold. ;)

the not so mighty maximiza's picture

When was the last time deadbeats owed China trillions over the entire northern hemisphere of Earth? 

equity_momo's picture

Ok so you ARE saying China will invade.  Will it be with Nukes or do they have several dozen fleet carriers hidden in a dry dock?  Or are they going to cram enough personnel onto that crummy thing they wheeled out a few months ago?

The US will default on China before Chinese military can get close to threatening anyone more than a timezone or two outside their border.