Gray Swan? Chinese Bill Auctions Fail

Tyler Durden's picture

With everyone focused on the US bond market, it was of course inevitable that the failed bond auction would occur not here, but in that other great liquidity pump and Keynesian playground: China. Market News reports that the Chinese Ministry of Finance was unable to sell all of its planned issuance of 91- and 273- day bills. The bond failures were attributed to increasing concerns of monetary tightening which, of course, would impact short-term rates and make investors skittish about locking up capital. Although being unable to fill a 3 Month order book is stunning - Chinese bond vigilantes are now officially on the prowl, and their (in)action guarantees either a hike, or much more serious liquidity withdrawal over the next 91 days, which would spell doom for stocks which trade now only on the combined efforts of the PBoC and the Fed to drown the world in colored pieces of paper. Throw in the unpredictable events of CNY revaluation, and the training wheels of the biggest reliquification experiment are about to come off. We caution readers not to be surprised if in light of these failed auctions, any overtures toward a CNY hike are indefinitely postponed.

More from Market News:

Traders said that the CNY15 billion offering of 91-day bills attracted bids totaling just CNY14.25 billion while the ministry was only able to sell CNY17.47 billion of the CNY20 billion in 273-day paper that it originally planned to auction.

The results of the auction also came in above expectations, with the 91-day paper selling at 1.2757% versus the 1.2374% quoted on Thursday and the 273-day bills going for 1.5418% versus Thursday's indicated 1.526% yield.

Market jitters about tightening rose following the reintroduction of three-year sterilization paper sales by the People's Bank of China on Thursday. The three-year notes will lock up more interbank market liquidity for longer periods.

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mattco's picture

Isn't Timmmayyy over there now? Maybe he spooked them again. Our market won't give a shit (even though we should) and this "blip" will only cause more buying in our market. BTW, I can't wait for the 1000 point rally when Greece finally defaults. The market has been hijacked by Chicago mobsters so what else are we to expect?

Ivanovich's picture

No one's market gave a shit.  Ours certainly won't.

Monday1929's picture

Right- once they default, the "uncertainty" will be removed. If a few other countries default, even more uncertainty will go away, allowing an even bigger rally. The biggest rally will occur when the US defaults- without all those bills to pay, the SKY IS THE LIMIT.


Lee S. AKA Notjamiedimon

three chord sloth's picture

I'm not savvy on all the details of the bond market; many of the deeper meanings behind their rise and fall escape me. But still I gotta tell ya... this looks like really bad news to me.

Cognitive Dissonance's picture

If you listen to the "bulls" you're just another person to be stepped on as they climb the wall of worry.

three chord sloth's picture

We've got bulls and we've got bears.

We've got swans... black, white, and gray.

Sigh... all I see are moles, voles, and trolls. Digging through dirt for the juiciest grubs and the meatiest worms. Eyes cast downward, never seeing the stars.

There's gotta be a better way to live.

Sudden Debt's picture

No wonder, check out those yields. Why would anybody buy them with today's stock market bull run? My portfolio average is +21% since jan.

I would never lock my money in bonds at a 1.5% yield! NEVER I SAY! WOEHAHAHAHAHAHA....

GeoffreyT's picture

Uh-oh... if Hop Sing can't even get his own laundry done, how on earth is he going to continue to help out the Ponderosa?


The Ponderosa is gonna be pa'rful dependent on them Primary Dealers, paw.


And it's another little lift to the "US to be three countries by 2025" thesis propounded in a research meeting in 2001. That's a consummation profoundly to be wished, because the fewer lunatic quasi-theocracies (societies where the political parasite class evokes some version of "Gott Mit Uns"), the better.






PS the captcha failed to determine that I am a machine. It has long been known within the whispers of the Great Masonic Conspiracy (of which I am proud to be a part)...

I'm just a Love Machine (and I don't work for nobody but you).

Tic tock's picture

Just beautiful. ...expect industrial prices to crash. If the Central bankers knowwhat's what, they'll sterilise upwards of two thirds of the sovereign bonds NOW. It won't prevent deflation, but it will stabilise the system out of hyper-inflation. Inmyopinion, a drastic reduction in prices is validated by the gap in activity,remaining unmatched by money supply. As for London, they never enjoy hearing critcism but.. they really need to improve the breadth of vision in their leadership. 

ShortStack's picture

The tightening has already ensued -- how much higher can rates go to fight inflation?  It seems like the 90-day's would be a decent play on the near-term revaluation prospects.

Tic tock's picture

The US is shagged seven ways from Sunday. My thinking is that if the Treasury sales are flagging now, it means conviction to the quick end to the recession is felt to be unlikely. If the ECB want to preserve asset pricing in Euros, then either it is hoping to preserve Euro depth or it is saying, essentially, the dollar should be less of a reserve currency. Likewise, if there is little demand for Chinese sovereign debt, although it only reflects the lack of perceived necessity for such, it also signals relatively clearly that further debt will have little effect on the current economic trend.

Now, if bond holders are concerned about debt issuance in its relation to adjusting economic activity, that could mean that they expect the current activity to be sustainable for economic growth and see the interest rate rising within the foresee-able future. Or, quite the opposite and that hyperinflation will, at some point, initiate.

Why is this not-so-great for the US? Though the economy is coming away from the bottom, the US is still hopelessy out of pocket and lacking strong consumer action. A higher interest rate would, as it would in any case, suck capital straight out, furthermore, at the present time it would shut down Wall st. Hyperinflationmay suit the dollar, and the equities market, but would it signal an end to Nazi rule?

(Short USDSEK)

junkyard dog's picture

The reason why the auction failed is that the people of China spent all of their money on tickets to see The Tim Geithner Comedy Tour. Tim will be going from province to province over the next two weeks doing a stand up comedy routine he has titled- Your Money is Safe in the United States.


mikla's picture

The reason why the auction failed is that the people of China spent all of their money on tickets to see The Tim Geithner Comedy Tour.

+1 LOL!

chindit13's picture

Looks more like a white swan, in full flight.  Obviously folks are freeing up extra funds to buy equities.  Both the HS and SSE had ample time to react, and they did:  up.

SWRichmond's picture

Capital shortage?  Skepticism about the direction of CNY?  But in 91 days bills?  I don't get it.

-1Delta's picture

Tyler- please sleep...jk this is great stuff...


Timmy says  buy buy buy !!! oh... what should we do with copper now...

plocequ1's picture

Yea ok, Thats great,What ever you just said.. Oh did i tell you? Market goes up

doggis's picture

'dog and pony show'.  i don't buy it. geithner is over in china as a rouse - plain and simple. There is NO coincidence that the failed auction happened now - he helped PLAN it. i smell the corrpution from here.

dear congress, in light of the recent chinese bond auction failure, we must say that china is NOT a currency manipulator.

stop working for the interest of the TBTF banks , and start the long term effort of investing in america mr. geithner - LEAVE CHINA ALONE.

Major Key Tonality's picture

Agreed.  This week just happens to be China's 1st auction of 3 year bills since June 2008.


KidHorn's picture

I guess China won't be sterilizing as many USD as usual. They pretty much have no choice but to offer higher yields. The alternative is very high inflation.

Hopefully China won't be dumb enough to let inflation and bubble blowing get out of control like Mr Bernanke and Mr Geithner are desperately trying to.

Assetman's picture

My impression is that the Chinese Central Bank needs to steal the playbook from our Federal Reserve and launder their money better.

All kidding aside (?), the Chinese went into this auction with a tightenting policy and clearly momentum of yields was on the upside.

The biggest difference between the Chinese and U.S. auctions is the implications on a failed new issuance.  With a huge monetary surplus, the Chinese can fail an auction and not miss a major beat.  And they really don't have to hide anything.

For the U.S., however, an auction failure is unacceptable-- due to the amount piled up and the need for low cost debt servicing.  As the days go by, I'm becoming more and more convinced that the Federal Reserve is neck deep in maintaining a massive shell game-- with the sole purpose of keeping confidence up (stock market) and new issuance costs low (Treasury auctions).  But that's really nothing new, is it?

If we audited the Fed today, it wouldn't surprise me one bit to find an off-balance sheet SIV that's at least $500 billion worthless junk.  Besides the ugly Maiden Lane triplets, we should be asking:

 "Are there any other SIVs you're hiding there, Ben?"

dabug's picture

FYI, my partner tells me there will be a RMB revaluation next week, a modest rise. He is usually right, but no promises

ZeroConfidence's picture

Good grief Charlie Brown!

How are they gonna buy more US debt if they can't raise the money to do it?

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