Gray Swan? Chinese Bill Auctions Fail

With everyone focused on the US bond market, it was of course inevitable that the failed bond auction would occur not here, but in that other great liquidity pump and Keynesian playground: China. Market News reports that the Chinese Ministry of Finance was unable to sell all of its planned issuance of 91- and 273- day bills. The bond failures were attributed to increasing concerns of monetary tightening which, of course, would impact short-term rates and make investors skittish about locking up capital. Although being unable to fill a 3 Month order book is stunning - Chinese bond vigilantes are now officially on the prowl, and their (in)action guarantees either a hike, or much more serious liquidity withdrawal over the next 91 days, which would spell doom for stocks which trade now only on the combined efforts of the PBoC and the Fed to drown the world in colored pieces of paper. Throw in the unpredictable events of CNY revaluation, and the training wheels of the biggest reliquification experiment are about to come off. We caution readers not to be surprised if in light of these failed auctions, any overtures toward a CNY hike are indefinitely postponed.

More from Market News:

Traders said that the CNY15 billion offering of 91-day bills attracted bids totaling just CNY14.25 billion while the ministry was only able to sell CNY17.47 billion of the CNY20 billion in 273-day paper that it originally planned to auction.

The results of the auction also came in above expectations, with the 91-day paper selling at 1.2757% versus the 1.2374% quoted on Thursday and the 273-day bills going for 1.5418% versus Thursday's indicated 1.526% yield.

Market jitters about tightening rose following the reintroduction of three-year sterilization paper sales by the People's Bank of China on Thursday. The three-year notes will lock up more interbank market liquidity for longer periods.


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