China CDS Spikes To Highest Since MAR09 As PMI Disappoints

Tyler Durden's picture

China's HSBC Flash Manufacturing PMI was released earlier this evening and showed continued weakness at 49.4 (below 50 implying a majority of manufacturers saw conditions deteriorating). The continuing moderation of growth is weighing on the Shanghai Composite which is down around 2% but it is the CDS market that is really cracking. 5Y China CDS is now an additional 20bps wider than the 10bps decompression we saw during Wednesday and is back to March 2009 levels at 167bps. It seems global markets are disrupted.



UPDATE: A number of Asia-Pac Sovereigns are cracking wider this morning:


Commenting on the Flash China Manufacturing PMI survey, Hongbin Qu, Chief Economist, China & Co-Head of Asian Economic Research at HSBC said:

“This is a similar moderating growth picture as in the previous two months. Fears of a hard landing are unwarranted. External demand weakened a little but official trade data still show solid export growth. China is less dependent on net exports, whose contribution to GDP growth was almost zero in 1H. Resilient domestic demand is sufficient to support around 8.5-9% growth in the coming quarters.”


From Markit's Economics Site:



Kiwi and Aussie are weaker post this print which is having its own negative impact on carry-driven US equity markets which legged down further this evening. China's CDS remains notably lower relative to its Govt bonds than other major global economies and perhaps the lack of printing in the US is enough to squeeze the USD-denominated CDS spread up towards bond-parity? If nothing else, this is a significant move even for a less-than-perfectly-liquid market.

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runlevel's picture

i feel like kramer .. ive seen so much red lately i made a bowl of tomato soup cherrios

covert's picture

we should be more ambitious like the chinese.


unum mountaineer's picture

i would conquer that broad to the right

Don Smith's picture

So if China does finally melt down, they start selling UST?  They said they were going to start liquidating USTs.  Is the Fed going to buy them?  Seems like what the Fed did with QE1 - bought a shit-ton of the most toxic MBSs in exchange for those countries to continue to purchase treasuries.  That "saved" the MBS market, transferring the risk to the Fed's balance sheet, and then the market hiccuped again, so we got QE2, and that rallied equities and yields started to rise again.  This creates a nightmare scenario for the US because it has to a) roll tons of short-term debt with no margin of error for a "bad auction" lest it be game over, and b) keep the long end down so allow the US even a prayer at paying its debts in the future (because it can now issue long-term debt with no roll risk at severely depressed yields).  

So the answer is Twis2.  But that's going to blow up bank earnings, so the financial sector will again come under pressure, requiring the "living wills" mandated under Dodd-Frank to be executed.  This, the hope must be, will allow for an orderly dismantling and recapitalization of the financial sector, but it may not go according to plan.

Am I off on any of these points? Is it safe to assume that this scenario has been gamed out fairly completely?  I'm not willing to believe those at the helm are stupid - just that their motivations are not aligned with Main Street, and therefore, as long as it keeps the game alive, they'll try it.  

Caviar Emptor's picture

They start dumping USTs the day the global financial system comes to an end. If that day comes have a helmet and flak jacket ready and keep Mrs Smith and Wesson by your side. At least we can all enjoy a beautiful display of fireworks. 

BlackholeDivestment's picture

...not stupid, you mean they are just evil bastards given the prophetic strong delusion.

chump666's picture

China goes into a panic, loan markets will collapse. 

China is done.  Gonna be brutal sell off on this.

Skid Marks's picture

Does this mean that carbon based life forms will be coming back?

BlackholeDivestment's picture

...Crayola's new color, The Great Wal Mart of China ''Commie Red''. One problem though, the kids can't eat these ones and live.

Crayola's Chinese source for the new product line is known as ''Second Child Soylent Green'', made from those Chinese parents (forced) aborted children, the parents that can't affort the second child penalty fee. Proceeds obtained for obortions come courtesy of the United States Congress and their slushy friends at CISCO Yahoo Google Microsoft (and of course Wal Mart Shoppers) etc... and the people they turned into the Chinese Government that were fined and jailed for things like putting Tank Man online. How are you doing in Hell Mr. Do Nothing About It Lantos? ...your friends will be following down that path soon.

Caviar Emptor's picture

Missing one key point: China slowdown is a reflection of US slowdown. Import figures were flashing red for 3 months. No decoupling. 

But yes China having it's own intrinsic issues (but who doesn't?). 

We may not get a blow up, but this all shows how thin the Ponzi Ice is getting: the money printing orgies from way back and especially from 08-11 are coming back to haunt....just in time for Halloween

chump666's picture

ZH, you see the China IRS spreads?  Just now?  They are mad buying USD's, CNY looking sell.   China is about to get with with some CNY weakness i.e more inflation.  Wonder if China is crashing in realtime?

janus's picture

here we go...brace yourself, asia.

live by the US; die by the US.

either die or defect, orient!



schadenfreude's picture

This news was in the newsflow of a German trading site, with reference to ZeroHedge.

I see some cracks in the marble walls of MSM. Excellent!

TheArmageddonTrader's picture

It's not mere deterioration, which wouldn't be so bad given China's record of rapid growth. Three months of slight deterioration from racing speed would still be fast.

But below 50 = contraction in manufacturing. Three months in a row of contracting manufacturing. In China, that means a lot.