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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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Tue, 07/12/2011 - 07:19 | 1447104 chistletoe
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

Tue, 07/12/2011 - 08:25 | 1447230 ratso
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.

Tue, 07/12/2011 - 11:59 | 1447932 Ahmeexnal
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.' "

Tue, 07/12/2011 - 07:20 | 1447107 Cassandra Syndrome
Cassandra Syndrome's picture

Central Bank Wars Bitchez

Tue, 07/12/2011 - 07:41 | 1447141 The Limerick King
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

Tue, 07/12/2011 - 08:13 | 1447207 WonderDawg
WonderDawg's picture

Well done, sir.

Tue, 07/12/2011 - 09:03 | 1447319 cartonero
cartonero's picture

Poet laureate of ZH, bitchez

Tue, 07/12/2011 - 07:41 | 1447144 TheFourthStooge-ing
TheFourthStooge-ing's picture

PBOC: Panicking Bank of China


Tue, 07/12/2011 - 08:59 | 1447309 Urban Redneck
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.

Tue, 07/12/2011 - 07:21 | 1447108 Internet Tough Guy
Internet Tough Guy's picture

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

Tue, 07/12/2011 - 07:56 | 1447172 Non Passaran
Non Passaran's picture

Gold, yes?

Tue, 07/12/2011 - 08:19 | 1447194 Zero Govt
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

Tue, 07/12/2011 - 07:24 | 1447116 RichyRoo
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."

Tue, 07/12/2011 - 07:26 | 1447119 freethinker4now
freethinker4now's picture

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

Tue, 07/12/2011 - 07:56 | 1447173 mayhem_korner
mayhem_korner's picture

How much yer want fer it?

Tue, 07/12/2011 - 08:28 | 1447236 Bob
Bob's picture

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

Tue, 07/12/2011 - 10:15 | 1447580 DosZap
DosZap's picture

Bob, did you not get the office memo?.

it's an Industrial Commodity!.

Tue, 07/12/2011 - 07:28 | 1447121 Jambo Mambo Bill
Jambo Mambo Bill's picture

IMF bailouts Latin America 80s China style.

Tue, 07/12/2011 - 07:31 | 1447122 kaiten
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.

Tue, 07/12/2011 - 07:35 | 1447131 Tyler Durden
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.

Tue, 07/12/2011 - 08:29 | 1447146 kaiten
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.

Tue, 07/12/2011 - 09:54 | 1447521 Gandalf6900
Gandalf6900's picture


U might have a very good point

Tue, 07/12/2011 - 07:47 | 1447155 GeneMarchbanks
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.

Tue, 07/12/2011 - 08:04 | 1447182 kaiten
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?

Tue, 07/12/2011 - 07:32 | 1447125 GeneMarchbanks
GeneMarchbanks's picture

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

Tue, 07/12/2011 - 10:19 | 1447587 DosZap
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.

Tue, 07/12/2011 - 07:32 | 1447126 Sudden Debt
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...


Tue, 07/12/2011 - 07:41 | 1447143 chump666
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.

Tue, 07/12/2011 - 07:47 | 1447156 Tyler Durden
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.

Tue, 07/12/2011 - 08:05 | 1447186 HITMAN56
HITMAN56's picture

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

Tue, 07/12/2011 - 08:15 | 1447211 oogs66
oogs66's picture

do you have the isda thing for this?

Tue, 07/12/2011 - 12:47 | 1448089 citta vritti
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.

Tue, 07/12/2011 - 08:19 | 1447218 decon
decon's picture

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

Tue, 07/12/2011 - 07:42 | 1447145 john milton
john milton's picture

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

Tue, 07/12/2011 - 07:45 | 1447151 Oh regional Indian
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.


Tue, 07/12/2011 - 07:47 | 1447154 Sudden Debt
Sudden Debt's picture

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





Tue, 07/12/2011 - 08:06 | 1447187 The Limerick King
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!

Tue, 07/12/2011 - 08:14 | 1447208 camoes
camoes's picture

LMAO +100000

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

Tue, 07/12/2011 - 07:49 | 1447159 johny2
johny2's picture

SNB and PBOC are on opposing sides in this game. 

Tue, 07/12/2011 - 08:04 | 1447183 rsnoble
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.

Tue, 07/12/2011 - 08:08 | 1447195 Rider
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.


Tue, 07/12/2011 - 08:25 | 1447231 Zero Govt
Zero Govt's picture

Idiocy does not know borders or have limits in Government

there fixed it 4 ya

Tue, 07/12/2011 - 08:11 | 1447198 equity_momo
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.

Tue, 07/12/2011 - 08:15 | 1447209 camoes
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...

Tue, 07/12/2011 - 08:29 | 1447239 equity_momo
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.

Tue, 07/12/2011 - 08:40 | 1447250 the not so migh...
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.


Tue, 07/12/2011 - 08:55 | 1447299 equity_momo
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?

Tue, 07/12/2011 - 09:02 | 1447315 snowball777
snowball777's picture

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

Tue, 07/12/2011 - 09:12 | 1447347 the not so migh...
the not so mighty maximiza's picture

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

Tue, 07/12/2011 - 09:22 | 1447395 equity_momo
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.

Tue, 07/12/2011 - 12:37 | 1448063 Mad Cow
Mad Cow's picture

It's amazing how many "out there" that keep repeating the same mantra of China getting hard assets in return for buying worthless paper using their own worthless paper. Must be the public education system or fluoride or something.

Tue, 07/12/2011 - 08:16 | 1447213 oogs66
oogs66's picture

so china now is only place left that can save the world?  or buy it cheap? 

Tue, 07/12/2011 - 08:30 | 1447240 Zero Govt
Zero Govt's picture

if "Saving the World" can be described as throwing good wealth after bad debt then Chinas Govt is definately going to be the lifeguard so stupid he drowns himself along with the 'victim'

That's not how The Hoff' writes his Baywatch scripts but that's how this one will play out  

Tue, 07/12/2011 - 08:29 | 1447238 tradewithdave
tradewithdave's picture

China attempts to grab the falling knife.  Sorry, but you're about a month late.  Hu needs to roll with the Bilderberg.

Dave Harrison

Tue, 07/12/2011 - 08:37 | 1447252 Rikki-Tikki-Tavi
Rikki-Tikki-Tavi's picture

Jerome Kerviel is having a busy day but can he convince the market?

Tue, 07/12/2011 - 08:39 | 1447258 Hondo
Hondo's picture

This is not bullish fact one should be selling China as here again we have a ponzi transfer of bad  debt to China and away from european banks and soverigns..........musical chairs.........last one holding the toxic waste that China now??

Tue, 07/12/2011 - 10:27 | 1447606 DosZap
DosZap's picture

If China is stupid enough to throw more Yuan onto a bonfire, so be it.

Tue, 07/12/2011 - 08:58 | 1447306 snowball777
snowball777's picture

Oh the irony of commies rushing to bail out foolish capitalists.

Tue, 07/12/2011 - 09:06 | 1447329 scratch_and_sniff
scratch_and_sniff's picture

The longer this drags on and the more convoluted it becomes, we might even see a major relief rally if Greece defaults, selectively or not, for no other reason than a release of tension, because its getting to the point now where people are just selling as a result of utter confusion, lol madness.

Tue, 07/12/2011 - 09:10 | 1447339 MFL8240
MFL8240's picture

When the Chinese stabalize Europe, the implosion will begin on this side of the pond. 

Tue, 07/12/2011 - 09:15 | 1447360 three chord sloth
three chord sloth's picture

Hmmm... I don't know about all this. It seems to me that, since in foreign trade a currency must complete a full circle back to its original nation*, all this means is China is no longer planning on buying stuff from EU nations anymore... and need another way to complete the currency circle.

They're gonna do to Europe what they did with America: Sell them stuff, and buy nothing except debt in return.

If I were Germany I'd be very afraid. I think this means China has finished their reverse engineering of all those fancy machine tools and control systems.

*or traded for gold in a hard currency regime

Tue, 07/12/2011 - 09:47 | 1447492 PulauHantu29
PulauHantu29's picture

if China play sits cards right, it can waste...oops, I mean swap all their hard cash for USA and Euro Debt backed by thin air....but they need to but lots before all the euro bonds drop to zero.


Tue, 07/12/2011 - 10:20 | 1447592 Silverhog
Silverhog's picture

Bunga Bunga bailout Chinese style. Relax pig, only hurt for a minute.

Tue, 07/12/2011 - 12:12 | 1447979 Roger Knights
Roger Knights's picture

As Jim Willie (I think it was) has suggested, this bailout makes sense if China is getting European CB gold assets pledged as collateral. This is the only way for them to get a large amount of gold without driving up the price. Even if their purchases are only 50% backed by gold, that could be a bargain in the long run, even in the event of a 100% haircut on their bond purchases, after gold's price doubles.

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