Yuan

"The PBoC’s actions are equivalent to an unwind of QE, or in other words Quantitative Tightening. The potential for more China outflows is huge [and] the bottom line is that QT has much more to go. It is hard to become very optimistic on global risk appetite until a solution is found to China’s evolving QT."

After 3 days of carnage and a day of stability, it appears the death of the bond bull market has once again been greatly exagerated. Whether it is China's absence after a strengthenig in the Yuan overnight or month-end rebalancing amid equity vol, Treasury yields are notably lower this morning...

As the situation in China continues to move into the realm of a full-blown crisis, you have to wonder how much more of their massive stockpile of treasuries are they willing to dump on the market?

"As soon as people sense the government is withdrawing from direct intervention, there will be lots of investors starting to dump stocks again."

• Stock Halts Added to Monday’s Market Chaos (WSJ)
• Fed Up Investors Yank Cash From Almost Everything Just Like 2008 (BBG)
• Drop in Stock Futures Signal Halt to S&P 500's Relief Rally (BBG) - at least until the BOJ ramps USDJPY up again
• Hacker Killed by Drone Was Islamic State’s ‘Secret Weapon’ (WSJ)
• Greece's Syriza to win election but face setback, poll shows (Reuters)
• Puerto Rico Spends More Than $60 Million on Debt Restructuring (BBG)

Overnight's start attraction was as usual China's stock market, where trading was generally less dramatic than Thursday's furious last hour engineered ramp, as stocks rose modestly off the open only to see a bout of buying throughout the entire afternoon session, closing 4.8% higher, and bringing the gain over the last two days to over 10%. This happens as China dumped a boatload of US paper to push the CNY higher the most since March, strengthening from 6.4053 to 6.3986, even as Chinese industrial profits tumbled 2.9% from last year: this in a country that still represents its GDP is rising by 7%. Expect much more Yuan devaluation in the coming weeks.

The size of the epic RMB carry trade could be as high as $1.1 trillion. If China were to liquidate $1 trillion in reserves (i.e. USTs) in order to stabilize the yuan in the face of the carry unwind, it would effectively offset 60% of QE3 and put around 200 bps of upward pressure on 10Y yields. So in effect, China's UST dumping is QE in reverse - and on a massive scale.

As Bloomberg reports, "China has cut its holdings of U.S. Treasuries this month to raise dollars needed to support the yuan in the wake of a shock devaluation two weeks ago, according to people familiar with the matter. Channels for such transactions include China selling directly, as well as through agents in Belgium and Switzerland, said one of the people, who declined to be identified as the information isn’t public. China has communicated with U.S. authorities about the sales."

Update: China readies new bailout mechanism - pooling CNY2 Trillion of Pension funds for "investment"

A busy night in AsiaPac before China even opens. Vietnam had a failed bond auction, Japanese data was mixed (retail sales good, household spending bad, CPI just right), Moody's downgrades China growth (surprise!), China re-blames US for global market rout, and then the big one hits - China's bailout fund needs more money (applies for more loans from banks) - in other words - The PBOC just got a margin call. China margin debt balance fell for 8th straight day (although the short-selling balance picked up to 1-week highs). China unveiled some economic reforms - lifting tax exemption and foreign real estate investment rules. PBOC fixesds the Yuan 0.15% stronger - most since March, but even with last night's epic intervention, SHCOMP looks set for its worst week since Lehman.

Managing markets is hard, especially when you’re doing it on a daily basis and sometimes you have to get creative, which is why we weren’t entirely surprised on Thursday when trader chatter indicated that at least one big Chinese bank (on behalf of the PBoC of course) was stomping around in the onshore swaps market...

Since the GFC, 'The Great Wall of Money' that Bretton Woods II has furnished via its vendor-financing relationship, has masked the deleveraging of our world economy. The Great Wall is about to collapse and fall.

News That Matters

In The Matrix in which Americans live, nothing is ever their fault. Nowhere in the Western media other than a few alternative media websites is there an ounce of integrity. The Western media is a Ministry of Truth that operates full-time in support of the artificial existence that Westerners live inside The Matrix where Westerners exist without thought. Considering their inaptitude and inaction, Western peoples might as well not exist. More is going to collapse on the brainwashed Western fools than mere stock values.