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German Bunds Tumble Amid China Reserve "Selling" Chatter
Amid the ever-expanding easing program in Europe (longer? more-er? different-er?), one of the largest concerns was that between the central banks domination of the markets, and the subsequent crushing of liquidity, finding willing sellers (at any price) to meet the needs of central bank asset purchasers could be a problem. However, as The FT reports, it appears the Chinese stepped up to the plate to 'help' The ECB (rather The Bundesbank) out from it dilemma. Just as we saw with Chinese selling US Treasuries (whether to diversify away from the major reserve currencies, deal with outflows, or to manage a liquidity crisis at home), The PBoC's reserve management wing, the State Administration of Foreign Exchange, has been selling some of its German government bonds since the ECB began buying them in March, say two sources close to central banks in China and Europe. This news has prompted further weakness in Bunds, despite expectations of Draghi unleashing more buying in December.
We previously asked "who will sell to The ECB?" in a detailed discussion of the scarcity of collateral constraints and lack of supply to meet quantitative easing requirements And here, rather ominously, is JPMorgan's conclusion - phrased as politely as possible - why the ECB will fail in its QE endeavor, something we have been warning about for the past three years:
"In all, we note the above analysis challenges the ability of the Eurosystem to meet its quantitative target without distorting market liquidity and price discovery."
Well it appears The ECB has found a willing 'external' seller. As The FT reports,
Concerns over the whether the Bundesbank, Germany’s central bank, could find enough German bonds to buy have long surrounded the €1.1tn programme. The Bundesbank must purchase around €10bn of bonds a month as part of QE — a potentially problematic amount due to low levels of debt issuance by the German state, although ECB officials have repeatedly downplayed these concerns.
The Bundesbank has scoured the world for likely sellers, according to one person familiar with the matter, including Safe. Under pressure to make a return on its reserves portfolio, Safe has agreed to take advantage of the high prices on offer for the low-yielding German bonds.
“Chinese sales of German Bunds would certainly facilitate the ECB’s quantitative easing operations, so this is an instance where the interests of the ECB and PBoC are congruent,” said Eswar Prasad, an economist at Cornell University and former head of the China division at the International Monetary Fund.
Sales by Safe, thought to hold hundreds of billions of euros-worth of European government debt, would also help the ECB should an emerging market slowdown threaten the single-currency area’s recovery and force a more aggressive package of monetary easing.
...
Safe does not deal directly with eurozone central banks, which purchase bonds from investors via banks’ bond trading desks. But its sales of bonds are making life easier in the dealing rooms of Europe’s monetary powers, where traders have been handed the difficult task of finding €60bn of mostly government debt to buy each month as part of the QE package.
In response to this report from The FT, The ECB stated - somewhat obviously now that we know there is a large willing seller:
“We provide weekly updates of bond purchase volumes but do not comment on individual transactions. We have not yet seen any scarcity of bonds to buy.”
The Bundesbank declined to comment.
Of course, while confident in the ability of Draghi et al. to soak up whatever China selling may remain, at the margin, knowledge of China's willingness to bulk dump its Bunds appears to be weighing on Germany's bond markets more than the banker would like...
Finally, we note the following two headlines from Bloomberg, which just about perfectly explain how no one knows what it going on in today's centrally-planned markets:
- First... German Bund drops as Draghi cools QE talk.
- And then... German Dax rises as Draghi hints at more QE.
Take your pick.
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China sure accumulated a lot of Toilet paper over the years.....
Maybe they should trade some to Venezuela. Oh never mind, they don't want that shit either.
China should make direct swaps for shiny.
soros
This'll end well. The EU is trying to go out in a blaze of glory and China is supplying the matches.....
China simply selling utter shite at high prices and buying gold at low prices. Western CB's must be a dream come true for them
Sell? Why sell? I'm holding out for that attractive -3% yield.
The Muslims aren’t going to pay the Bunds back. Sell, sell, sell them while suckers are still out there.
indeed.
http://renegadetribune.com/the-jewish-contribution-to-the-european-integ...
First understand what makes QE necessary:
QE is only necessary as a general policy for Central Bankers when the level of debt in society has grown to such proportions that the debt-service cost is greater than the economic growth.
When that happens, all productivity goes into decline as businesses must choose to fund EITHER debt service, capital renewal, or Operations.
The Act of QE itself, which expands debt at a greater than 1:1 ratio with currency...actually makes the problem WORSE.
But it does delay the debt retirement/rollover date.
Gold stackers would love is China would sell not only USD reserves but also Gold reserves :P
That would be really funny.
You could buy gold even lower
Well..?? ECB wants to MONETIZE ALL ITS DEBT??
So..?? China more than HAPPY to oblidge.
Why holding some papers that generated NIRP'ed??