Despite PBOC Liquidity, Chinese Repo Rates Blow-Out To 4-Month Wides

Tyler Durden's picture

The last two weeks have seen US equity markets on a one-way path to the moon, breaking multi-year records in terms of rate of change and soaring to new all-time highs. However, away from the mainstream media's glare, another 'market' has been soaring - but this time it is not good news. Chinese overnight repo rates - the harbinger of ultimate liquidity crisis - have exploded from 6-month lows (at 2.5%) to 4-month highs (6.7% today). The PBOC even added liquidity for the first time in months yesterday (via Reverse Repo - at much higher than normal rates) but clearly, that was not enough and the banks are running scared once again that the re-ignition of the housing bubble in China will mean more than 'selective' liquidity restrictions.

“The surge in money rates and the very volatile intraday trading shows the market is totally confused about the PBOC’s intentions,” says Frances Cheung, Hong Kong-based rate strategist at Credit Agricole CIB. “The central bank’s reverse-repo operations yesterday are deemed not enough by the market.”

It would seem yesterday's reverse repo - at considerably higher than normal rates - was a shot across the bow of Chinese banks that the liquidity spigot may not be as open they hoped.

As MNI reports, the 1Y Chinese Treasuries went off at 4.01%, significantly higher than market rates at 3.8% and were only 1.22 times oversubscribed (as opposed to a more normal 2x).

Traders said demand was weak because liquidity is tight on end-of-month squeeze...


Is the Fed finally getting to China?


As we noted previously,

Naturally, it is not rocket science that the only reason why China is growing at its current pace is because it is once again injecting record amount of liquidity into the system, and if the credit spigot is open, the country grows; if it's shut - it stagnates, as we described in "China: No Leverage, No Growth."

But a far bigger problem is that while China's debt is already at record levels, it needs an increasingly greater "credit impulse" to generate the same or smaller amount of GDP "growth" as before, a phenomenon we described in April.

The nation’s debt-to-GDP ratio, excluding central government and financial debt, widened to 207 percent as credit growth continued to outpace productivity gains, Mike Werner, an analyst at Sanford C. Bernstein & Co. in Hong Kong, wrote in an Oct. 21 note to clients. That’s making investors nervous about bad loans rising at banks, he said.

But while banks are finally starting to catch up to the reality that their balance sheets are woefully unprepared for what may be an epic superbubble house of cards crashing on everyone's head, a key issue is that the price discovery process of insolvent entities in China is simply non-existent.


Which all ties rather nicely into Michael Pettis recent note that China's hidden debts still need to paid...

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Seasmoke's picture

30 minutes and not a single post. Thats a ZH record. Is everyone still reading ??? Or has everyone finally given up !!!

dcohen's picture

No, I am in Europe now and it is 04.34 am here

max2205's picture

Xnay on the reserve currencySay

JohnG's picture




Been sitting here hallucinating after the 6 day marathon health insurance signup.

Seems the state of GA has a big fucking problem.



BandGap's picture

Not given up, hunkering down.

Waiting for the sign that the slide has started.

toe's picture

No, everyone is just watching their platform to see if es dips 2 points on this news so they can buy it before tomorrow's rally on the fact that were not tapering.

dcohen's picture

By this time, almost everyone agree that there will be no shortage of FED juice, and any announcement to reinforce that belief would have me inclined to lean towards the greater possiblity of a pullback rather than another rip.

JohnG's picture



There will be no taper.  It's not possible.

Maybe a Tapir will walk into my yard.

I'll take that bet.

Who want's to bet {edit} :bet me a sandwich?


chump666's picture

USD is bid, that would be China, maybe.  Stocks could be topped for a day or so, EUR is overbought, gold is sell. Watching crude, interesting, again China.  Fed supporting China? Well they are support Japan.  To truly support China the Fed would have to target 0.60 on the DXY and allow Asia/Pacific to just use Yuan.  In all seriousness, a China liquidity squeeze and credit collapse will blow the world, taking out Europe China trade thus Europe completely, then America.  The Fed would have to target hyperinflation and buy China, meanwhile in America, Ron Paul with a lynch mob would come knocking on the Feds door.

Your move...

CunnyFunt's picture

It doesn't matter.

All my mates in O&G say buy and hire.

I'm out for a new contract and all my bites have been in O&G. There has been fuck all in civil and structural, but the O&G boys are taking any cunt who has qualifications.

In all my years, I've never seen the deck so unbalanced.

Texas, Oklahoma, North Dakota and Kansas (Koch) are all desperate for bodies. Even Pennsylvania (Marcellus shale) needs people (check out Williams). If douche-bag Cuomo would get on board, add New York to the list.

I spoke to a recruiter in Houston today and he was spastic about contracts coming on-line in 2014.

chump666's picture

tech bubble and spec oil/gas bubble

yayyyyyyyyyyyyyyyy obama!!!

CheapBastard's picture

Moar Chinese liquidity means moar Bubble Chinese House prices. Most of their so-called "liquidity" flows directly into their Housing Bubble, blowing it Bigger and Bigger.

ebworthen's picture


2.5% yo 6.7% is not good!

Sum Ting Wong!  I know that guy!  Ben?  Janet?

No price discovery?  What!?!?  Are they learning from the U.S. too well!?!?

BringOnTheAsteroid's picture

I suspect most Zero Hedge readers are bears and therefore short the market . . . . . . . . and therefore no longer have a shirt on their back let alone an internet connection.

JohnG's picture




And here I am waiting for health insurance open enrollment.

Six hours now.  I should live blog this with chat and phone.




No shit my wife said "You do it."

I'm trying honey,,,,,,,,


I try, but nothing, and it is 02:25.  WTF????

Apostate2's picture

Hong Kong pirate bank is now offering preferable rates for  new yuan deposits.WTF?


Rogue Economist's picture

No big surprise.

The Chinese are TOAST.

Chinese Toast