China Suffers Failed Treasury Bill Auction

Tyler Durden's picture

One day after China's regulator halted trading in bond futures for the first time ever, Beijing suffered another catalytic bond-market event overnight when it failed to sell all the Treasury Bills on auction Friday, for the first time in almost 18 months, as bids fell short of minimum requirements, according to traders required to bid at the auction.

As BBG reported overnight, the Ministry of Finance sold only 9.57 billion yuan ($1.38 billion) of 182-day bills in a planned 10 billion yuan sale, and 10.85 billion yuan of 91-day notes in a planned 12 billion yuan sale, according to a statement from the bond clearing house. What is notable, is that the Bills on offer paid a hefty yield: the 182-day bills sold for 2.9565%, while the 91-day bills sold for 2.8991%.

In other words mainland bond traders are concerned that short-term China rates could spike substantially in the next 3-6 months.

The failed auction comes despite the December 2014 adoption of a "primary dealer" system which includes 50 banks and which are required to bid at debt sales. On Friday, more than one of China's dealers did not do as mandated, leading to the unexpected outcome.

In an amusing comment shared yesterday by the WSJ, Hao Hong, co-head of research at Bocom International said that "People woke up to the fact that the bond bubble is too large. The bond market in China is under severe pressure, across the board."  Today's event confirmed his observation.

The auction failure has come amid a debt selloff that has surprised investors, and which many dubbed as indicative of the bursting of the Chinese bond bubble after China's 10-year sovereign yield plunged the most on record Thursday, leading to a brief freeze in futures trading in the $9 trillion bond market. The notes are pressured from a combination of factors, with hawkish Federal Reserve comments adding to the heat from the yuan’s decline and waning money-market liquidity. The People’s Bank of China has steered borrowing costs rates higher, forcing a correction in the highly leveraged market.

“No one has the time or demand to bid for short-end government bonds,” said Guotai Junan Securities Co. bond analyst Xu Hanfei. “Short-term funding is tight, money-market fund redemptions are ongoing, certificate of issuance rates are rising and short-term liquidity hasn’t eased markedly. In addition, sentiment in the bond market is poor. Even demand for short-end bonds is weak.”

Hopefully demand for longer-dated bonds will be stronger, although that may be bold assumption: “the Chinese bond bull market is over, as we have seen a turning point in money market rates this year,” said Yang Delong, chief economist at Shenzhen-based First Seafront Fund Management, referring to a tightening of liquidity in China that began this autumn and has recently gathered pace. If that view becomes prevalent, failed auctions will be the least of Beijing's worries.

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thesonandheir's picture

Dow 20k today then?

knukles's picture

This my fine feathered conspiracy theorist and false news junkie pals, is exactly how financial crises start.  Well, start to manifest themselves.
Suspended market activities, failed auctions.
Nothing to see, lose along.

 Bless their pointed (sloped as a matter of mathematics) little heads

max2205's picture

i could live off of China bond rates

Squid-puppets a-go-go's picture

knucks, u been here at zero hedge 8 weeks longer than me. In 7 years of Tyler Durden boot camp, you still have a far better grip of the bond market than I

But maybe this means congress will give trump his stimulous after all

Darktarra's picture

So the PONZI scheme America has 'franchised' around the world isn't working for China?  Too F'ing bad... 

Darktarra's picture

You gotta get the pronunciation down: 

Sum Ting Wong

Ho Lee Fuk, Sum Ting Wong! 

bruinfan's picture

Instead of calling it an "auction failure", why not just let the bonds enter the market and see how much it sells for?

knukles's picture

Ballllachhchhhh ragggagh!  What!?  Find out what they're really worth?
Are you crazy?

You no more wanna know really what some paper stuffs worth anymore than you wanna know what's in your sausages.  Besides ground anuses. 

In your sausage. 

Txpl9421's picture

In Russia, you no ground anus' for sausage...

The sausage grind your anus.

back to basics's picture

Is this mean another 200 points up on the DOW today?

MFL5591's picture

But, we are to believe that with a 20 Trillion dollar debt and in a country that produces nothing, all is good and traesuries are being bought at record numbers?  Laughable!

King Tut's picture
King Tut (not verified) MFL5591 Dec 16, 2016 8:27 AM

The US is like Lloyd in Dumb and Dumber with a suitcase full of handwritten IOUs

gcjohns1971's picture

The "we produce nothing" meme gets repeated a lot.

But while the US has offshore a lot of manufacturing, the amount here to begin with was very very large...double anyone but China.  So a 50% reduction is not only more than nothing, it still ranks highly in the world.

Moreover, the US produces more oil, specifically, and hydrocarbons generally, than anyone...and the US also refined all its own hydrocarbons, and most everyone else's too.

So...most of the hydrocarbons in the world pass through the US.

But it is also true that the US burns all its domestic oil and more.

Nevertheless, production in the US is not only more than nothing, it is larger than everyone but China...specifically everyone COMBINED minus China.

While manufacturing is most lucrative, you gotta look further.

The US economy, by any measure you like, is still very, very large.

Hope Copy's picture

But darling debt is like a mortgage and the reasonable time on such is 15 years, as with a 30 year note it more than doubles the amount that has to be paid back.  There is also the debt load that should be considered and the debtors, so it is totally unethical to pass the debt onto the next generation.'s picture

toilet paper - in demand Venezuela

King Tut's picture
King Tut (not verified) Dec 16, 2016 8:25 AM

That's why we have the Fed

Stan522's picture

I believe this is the Trump effect....

Trump will finally penalize this despotic country for unfair trade practices and no one believes they will be better off.... Don't buy their bullshit....

King Tut's picture
King Tut (not verified) Stan522 Dec 16, 2016 8:31 AM

If Trump really wanted to screw the Chinese he would default on US debt but he doesn't have the stones

Stan522's picture

Besides screwing the Chinese, what other outcomes would occur if Trump defaulted?

Jacksons Ghost's picture

Just have your Central Bank buy them, right Janet?

buzzsaw99's picture

the problem is the brand. they should try selling usa treasurys directly to the china public at large. what a hoot that would be. woo doggy!

King Tut's picture
King Tut (not verified) buzzsaw99 Dec 16, 2016 8:34 AM

The Chinese public loves shiny yellow metal so they aren't too bright- your idea just might work.

buzzsaw99's picture

might work my ass. it would work too damn well and they damn well know it.

I'm trying to control an outbreak and you're driving the monkey to the airport! [/Hank Hill]

youngman's picture

at some point it does just become paper..when they print so much of it...

ipso_facto's picture

Remember grandparents' experience of stacks of bonds becoming worthless in the Great Depression?  Welcome to the Greater Depression.

The Carbonator's picture

The Fake news "media" must somehow blame Trump for this.  Its his fault even when it isn't you know.

ZeroPoint's picture

China is the alpha and omega of fiat money.

Clara Tardis's picture

China got an ouchie, no problem, we'll slam gold down to 950, prior to our chickens coming home to bondroost. DOW29K!!!!

angry_dad's picture
angry_dad (not verified) Dec 16, 2016 8:52 AM

nobody wants to buy us debt at the risk of a trump default

yogibear's picture

The banksters at the Federal Reserve plan on fucking China.

Hey China, stand there like a bunch of dummies while the Federal Reserve has already enacted plans to outsmart you.

Hope Copy's picture

Constitutionally the Chinese would have had to have taken coin if they didn't like paper debt.....  LoL

gcjohns1971's picture

The Chinese have been printing WAAAAY too much currency.

They are not the only ones.

If you think the greatest risk is a worldwide currency crash, I have a question for you:

DO you really think China, or any of the other mad printers of the world will admit their crimes?


Next ask, "who will be their scapegoat?"

And, "What will they do to their scapegoat?".


Winter is coming...pray it is not nuclear.

trueFacts's picture

apocalyptic methinks

Billy Shears's picture

It is truly incredible how all the nation-states put their all their eggs, faith, "trust" in these fiat issuing CB when they could all just issue their own debt-free currencies. Problem: thieving bankster, Reaction: abhorrence, Solution: take them out back and shoot them.

Skiprrrdog's picture

Obama's birth certificate was proved to be a FORGERY by expert forensic examination, as announced live at a press conference yesterday by Sherriff Joe Arpaio

Why isnt ZH, or ANYONE talking about this?

peddling-fiction's picture

Maybe we need to wait for the nuclear football to change hands first.

Hope Copy's picture


Yes O'Bummer is an unconstitutional President and Trump said so and said what he would do about the issue.  RT in an article a couple months ago pointed out that the issue was that O'Bummer's father disqualified him, as his father was a foreigner, at the time of his birth and as on the birth certificate.   So does this mean the O'Bummer does not get Secret Service protection after he leaves office..??  This will be seen, but while O'Bummer is still in Washington D.C., probably so as the Secret Service report back to the President. 

peddling-fiction's picture

No Presidential Museum nor Library for the teleprompter-reader-in-chief

Latitude25's picture

Everyone to the stocks side of the boat until it starts to sink, then back to bonds.  But wait, that boat has already sunk.

SMC's picture

The twilight of debt based monetary systems.

withglee's picture

The twilight of debt based monetary systems.

As if there was any other kind.

If you think there can ever be a monetary system that is not debt based, describe it! Show how it guarantees perfect perpetual balance between supply and demand for money ... a absolutely necessary constraint for guaranteeing perpetual zero inflation of the money itself.

Money is "a promise to complete a trade" over time and space. And all promises are "debt based".

Hope Copy's picture

Auction with minimum requirement for such large amount.  What did they expect?  Perhaps they should have traded with the Ukrainian oligarchs for a big pile of titanium dioxide (but it would be FOB and no loading facilities at the pile).  If China wants to 'cut and run', they had better just get over that lump in their throat and take the losses, because the loses are coming.  To much of what was thought to be  GOOD THING...

Herdee's picture

China just seized an unmanned U.S. submarine in the South China Sea. Seems like the Americans like giving away all their sophisticated technology for free. Iran acquired the latest drone technology by safely landing an American drone and now the Chinese capture awhole submarine with nobody in it. You'll note the same level of Obama/WhiteHouse whining like crybabies - give us our submarine back you bastards. First one captured. Hard to beat a deal like that,now China just copyies it and does the same up and down both coasts and then shares the technology with others as well.

monad's picture

No problem. Just dump the shiny.

khaproperty's picture

Easy liberal times are gone folks. Now hard reality is going to come back again.