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Bear in mind that China has injected more this week than in 2012's year-end and that this all has to be withdrawn in a week or so...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?