Chinese CDS Worsens As Post-Year-End Liquidity Needs Spike

Tyler Durden's picture

The PBOC has injected around CNY 400 billion into China's banking system in the last week focused in the 7-day reverse-repo maturity. While this has been greeted with moderation of the spiking trend in ultra-short-dated funding costs, there is a problem still. With the CEG#1 Trust maturing on 12/31 coinciding with the farce that is the 'confess all mismatched sins' debacle that occurs every Chinese Lunar New Year, the need for liquidity through that maturity is becoming extreme (while shorter-dated not so much). 14-day repo is now at 7.2% - almost 300bps above 7-day repo (which matures before year-end). In fact, it seems those concerned about possible Chinese contagion effects are buying protection aggressively as 5Y CDS jumped over 5bps to 102bps - the widest in 7 months (since the credit crunch in the Summer). This is far from over...


7-day repo in less demand (or over-supplied for now) as 14-day repo (which will see banks through the year-end) are seeing rates spike... at its widest today banks were willing to pay almost 250bps to extend the reverse-repo from 7 to 14 days - quite a curve!!!


And Chinese CDS are blowing wider still...


Given our earlier note on the depositor problems at some banks, we though Nomura's comment very apt:

Media reports that some farmers’ financial cooperatives are failing to pay depositors may be another sign of rising financial stress in China as interest rates rise and economy slows, Zhiwei Zhang, China chief economist at Nomura, wrote in note yesterday.


Continues to see credit defaults to occur in corporate, LGFV and shadow banking sectors in 2014


The fact that CNR, a major official news agency in China, reported on co-ops may suggest govt stance on financial risks is to acknowledge problem, strengthen regulations


Bear in mind that China has injected more this week than in 2012's year-end and that this all has to be withdrawn in a week or so... (see blue bars) if the PBOC policy reforms are to hold any credibility at all...


Do you really think that will happen?

Charts: Bloomberg

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y3maxx's picture

This is not "Hack", China is bombing NSA Headquarters as we speak...

my wish for tonight

LetThemEatRand's picture

If a price falls at Walmart and no one is there to buy it, does it make a sound?

Dr. Engali's picture

Need moar wequiditwee.

NoDebt's picture

You have any doubt it will be provided?  Yeah, me neither.

This is the most orderly liquidity crunch I've ever seen.  China's reshuffling the deck to start to squeeze out what we would call "shadow banking".  The core will be preserved at all costs in China, as it is here.  

Do I really believe an ill-named "Credit equals gold" trust with a whopping $500MM is going to take down the whole Chinese credit market?  Um, no.  Sorry, but I'm not buying the magic on that one.

This is what I think Fonz would call a "big fat nothing sandwich."  Yes, there will be volatility.  No, it's not the beginning of the end.

Dr. Engali's picture

I agree. Today's "sell off" was too orderly and controlled. They will have to do better if they want to sucker me in as a short. I'm sure there will be some early takers getting a hot Pomo poker stuck up their ass.

Sizzurp's picture

We all know what a credit collapse looks like, and we all know what they do about it.  QE comes to China, or they sell assets to raise cash.  Decisions decisions.  Maybe they just say to hell with it and go to war.  I got it, all 3.

ms8172's picture

They need to sell US treasuries to fund their banks.

disabledvet's picture

they're called "peasants" not farmers.

who has title to the land again?

hmmm. doesn't sound like adverse possession is a problem here. the USA developed in a far more "free wheeling" manner:

Interestingly water rights in the West are left "in Trust to the Judge" as per the Hidalgo Treaty of 1848.

Might not sound like a big deal but there was a time when water was far more valuable than any other resource.

obviously even today there are no shortages of coal. But just look where the railroads were built. "Right next to rivers." And those rivers were to be dammed as well.

The irony of course is that we didn't need the water.
We sure thought we did though.

This gave rise to the idea of a "corporation" as a title holder to actual property AND all the resources therein. This makes for a rather odd "juriprudential history" as something "in the abstract" (a "corporation") can actually hold title to not just property but all resources contained there in.

In other words "a great way to drive up the price of something that isn't scarce at all."
hmmm. "that stock went through the roof today." literally "the oldest publicly traded company on earth." If you bought that thing back in 1850 or whatever...and never'd be "owning half of New York City right now." (and probably most of the State.) And yes..."trading that stock is like spending a day trading Berkshire/Hathaway."
hmmm. "big down day. 319 shares traded." I'm sure the boys at "Ramp Up's Bar and Grill" were really Colonel Clinking those champagne glasses!

what was the spread? "fifty cents on a 172,000 product"? MAN...that man is TIGHT with his billions!

Constitutional Republic's picture

China is being ruined deliberately, again. The international financiers chose the East as the next place to be gutted, as per their historic inclination, now that they have gutted the West with peak debt (called credit). In my opinion.

Credit for them. Unpayable debt for everyone else, with career politicians appointed as the baliffs.

headhunt's picture

This would cause China to call thier US debt and would result in the USA being squashed.

The domino effect would run around the world.

In that case - Got food?

q99x2's picture

They might be able to correct the situation. I hear they hang and/or shoot corrupt bankers in China.

malek's picture


The Chinese New Year is January 31st, 2014...

ebworthen's picture

Withdraw liquidity?

That would be like sound money.

Like a snow ball's chance in Hell on the day Blankfein, Paulson, and Dimon make their way down.

I got the bottle of champagne chilling in the fridge waiting...

shawnmike's picture

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