This page has been archived and commenting is disabled.
Behold: A Chinese Liquidity Crunch
Earlier on Thursday we got official confirmation of what has been quite obvious for months. Namely, China is liquidating hundreds of billions in USTs in a frantic effort to stabilize the yuan following this month’s historic devaluation.
Of course selling USD assets sucks liquidity out of the system which works at cross purposes with the multiple policy rate cuts Beijing has resorted to over the past several months, which means that the more China intervenes in FX markets the more offsetting RRR cuts will be required in a race to the bottom that will see rates at zero, along with China’s UST reserves. Over the past two weeks, China has sought to mitigate this self-feeding loop by injecting liquidity via short- and medium-term lending ops and, most dramatically, via 7-day reverse repos.
For the full backstory, see "China Rushes To Inject Hundreds Of Billions In Liquidity To Offset Yuan Intervention," but the extent to which China is desperate to save its RRR cut dry powder by trying to mitigate short-term, FX intervention-induced tightening via emergency liquidity injections can be readily observed in the following chart.
»
- 18133 reads
- Printer-friendly version
- Send to friend
- advertisements -
What you are looking at is the derivate symptoms of DNA interaction. It’s like those monitors in the hospital, which don’t work. I always crack up when the critters act like there is a direct relationship between those monitors and patient vitals. What I don’t like is when they make decisions about me and my children based upon that nonsense.
The markets have been broken for a long, long time. It’s just getting impossible to hide the fact any longer. Don’t take those resumes seriously. The critters studying the shrinking market and increasing the efficiency of resumes are themselves trapped in a shrinking market, subjecting themselves to termination.
Which do you trust, what you see or what your instincts tell you? On which side will you learn more if you make a mistake?
When you see excessive variability, check the connections.
They need HFTs, I hear they bring the liquidity the market needs. Kind of like Brawndo.
… you’re not allowed to have instincts anymore -- they’re UNFAIR! It implies that some are smarter/quicker/more intuitive than others.
You may only act using approved information obtained through “education” or from officially authorized sources.
Jesus the Christ; you asked about trust.
I'm with you Kevin. I didn't understand a thing in the article.
being out of dollars will be a shit for china -----must be why they have been trying to get agreements for other currency settlements----things have been bad for a long time overthere--IMHO
They have GOLD; they have GOLD and we do not.
China sells FED bonds. The kindly Fed/market buys up Yuan to repay the Chinese. Yuan liquidity in the market declines. Raising the value of the Yuan. The opposite of what China desires.
They should have just printed.
water water everywhere and not a drop to drink
7 day repos provide cash for.... 7 days then crunch resumes. Would it be so hard to put that in the effin article? Maybe not in a run on sentence?
The first rule of waterbeds (and other forms of liquidity): when you push down over here, it pops up over there.
I read a lot of posts on this site about the brilliance of the chinese selling treasuries but I suspect they are selling simply because they have problems. China was eager to sell their slave labor and kept doing it and just couldn't see that the world doesn't really need as much of the crap they can theoretically produce. Now they are stuck with overcapacity, malinvestments, pissed-off slaves employees, and a world-wide customer base with very little purchasing power left. They need cash and may pawn off all they can. Now may be a good time for the corrupt chinese to go on a permanent vacation to one of their getaway homes they purchased on the west coast. The global house of cards is falling, just more slowly than I thought it would take. Our turn is coming, just not yet.
The reason they're selling will become clear soon, Grashopper.
Wake me up when some systemicly important player loses access to overnight market like Lehman did in the days before it died. Thanks.
If you were China wouldn't you sell some more UST before too long? They can never hope to completely divest before setting of THEE rout so they might as well get to it. Maybe after their big parade would be a good time so it doesn't get blown up.