China Yield Curve Slumps To Record Inversion Despite Massive Liquidity Injection

The good news - thanks to the largest liquidity injection in almost six months, yields on China's sovereign bonds have fallen - the biggest drop since Dec. 29, to 3.50 percent, while the one-year dropped four basis points to 3.57 percent. .

“The People’s Bank of China’s liquidity injections are showing its intention to protect the market at this sensitive period of time,” said Sun Binbin, a Shanghai-based analyst at Tianfeng Securities Co.

Notably this is the largest liquidity injection for this time of year in Chinese history (noteworthy since spikes in liquidity occur at regular intervals around quarter-end and lunar new year).

The bad news - as yields have fallen, the curve has collapsed to its most inverted ever... flashing warning signals for growth as loud as they have ever been.

Of course, if Fed's Dudley is to be believed today, a flattening yield curve is not a negative signal for the economy... apart from the seven out of seven times it has occurred since the late 60s, perfectly predicting recession of course.

Furthermore, as RBC's Charlie McElligott notes China's tightening financial conditions (higher short-term rates in the chart below) have crushed not just the yield curve, but global commodities...

Lenders have become increasingly reliant on wholesale funding and central bank loans this year, analysts at China Minsheng Banking Corp.’s research institute wrote,“major banks don’t have much extra funds, as is shown by the excess reserve data,”


As The Wall Street Journal previously reported, an inverted yield curve defies common understanding that bonds requiring a longer commitment should compensate investors with a higher return. It usually reflects investor pessimism about a country’s long-term growth and inflation prospects.

“But the curve inversion we are seeing right now is one with Chinese characteristics and it’s different from the previous one in the U.S.,” said Deng Haiqing, chief economist at JZ Securities.


The current anomaly in the Chinese bond market is partly the result of mild inflation and expectations of a slowing economy, Mr. Deng said. “At the same time, short-term interest rates will likely stay elevated because the authorities will keep borrowing costs high so as to facilitate the deleveraging campaign,” he said.

Notably, it appears officials are concerned at the potential for fallout from this crisis situation.

In an article published Saturday, the central bank’s flagship newspaper, Financial News, said that the severe credit crunch four years ago won’t repeat itself this month because the central bank will keep liquidity conditions “not too loose but also not too tight.”


Chinese financial markets tend to be particularly jittery come June due to a seasonal surge of cash demand arising from corporate-tax payments and banks’ need to meet regulatory requirements on capital.


On Sunday, the official Xinhua News Agency ran a similar commentary that sought to stabilize markets expectations. “Don’t panic,” it urged investors.

Sounds like exactly the time to 'panic'.


Hitlery_4_Dictator Mon, 06/19/2017 - 21:03 Permalink

Worth repeating: Like my banking contacts said;When the reset happens after the trigger event, the New US currency will be totally digital. There will be money but the only money allowed will be the dollars connected to the universal digital system. So all these crypto-curriences will be illegal. Bartering will be illegal including using gold and silver. They (Gold & Silver) must be cashed in to the digital bank system. Bartering or using gold and silver outside the digital system will be like selling illegal drugs on the street. You will be a criminal, this may go for hording as well.There will be no more “Brick and Mortar” banks. Plans are already set to abandon them all and become like; a totally digital bank with no brick and mortar bank branches. A bank that will provide everything from insurance, investing and banking. Everything to do with money.Everything in all financial accounts will be devalued on the average 50%. Including with this haircut, prices and wages will fall about 50%, just like what happened in 1929 to 1935. It will be too expensive for brick and mortar retail; thus, from scoops to nuts, food to cloths, everything will be digital and on line and will be delivered.Due to the devaluation everyone with a debt instrument connected to what they have will lose it unless they can pay of the balance of the devalued property against the principle on the per-devalued property.Being outside the digital system you can’t pay tour taxes, thus you lose your debt free home and car if you don’t join the digital system.We are already seeing some prices fall, stores encouraging on line shopping and leasing and renting not owning. When I purchased my last car, the dealer told me they make more money leasing over selling a car and they can put the customer in a better car than he could afford if he purchased a car.The patient already has terminal, the cancer is just now beginning to appear and it’s just a matter of time.

TheLastTrump (not verified) gammab0y Mon, 06/19/2017 - 21:48 Permalink

You don't understand. This is what they are working to make happen. Their schemes have already advanced beyond belief, in comparison to 20-30 years ago. I can compare. It's real. The specifics may be off a little but this guy is on the right track. It all ends in the Book of Revelations of St. John the Divine. Pleasant dreams. :)   

In reply to by gammab0y

jewish_master Mon, 06/19/2017 - 21:19 Permalink

u decribed faction A plan (bad guys).faction b (good guys) try to subvert them, they released blockchian .is up to the ppl to decide if the bend over again like the sheep they are or recalim thier liberty back.

GodHelpAmerica (not verified) Mon, 06/19/2017 - 21:26 Permalink

Buy the yield curve inversion

You know what's really cool today? You don't even need an algo to make money in this market. You just buy every event.

gold rubeberg Mon, 06/19/2017 - 22:00 Permalink

Well at least the PBC can always buy stocks to prop up prices since China's a communist country and isn't expected to abide by free market capitalism like we do.

... oh ... wait ...

Horse Pizzle (not verified) Mon, 06/19/2017 - 22:02 Permalink

Chinese, South Americans, and Africans are integrity challenged.  Must be the melanin.

Let it Go Mon, 06/19/2017 - 22:50 Permalink

Do not underestimate the influence of money fleeing and leaking out of China on the world economy. The Chinese are even rushing to but companies outside their country. I see much of this as a way for those in China to hedge their bets and at the same time get money out of the country.The Chinese economy is being propped up by a stack of newly printed money. In a world where money flows across borders at the press of a button, it doesn't matter which major central bank is adding money to the system the effect is the same. Today money printed and injected into the economy of any country drives markets higher across the world by distorting demand and prices.Those who doubt the power of cross-border money flows need only look to Vancouver Canada which has been forced to implement a foreign buyer tax in an effort to halt the rise in housing prices inflated by "hot money" from China. Toronto's housing market has also gone crazy with prices soaring 33% from the prior year. For more on just how much China is expanding its money supply see the article below.

Cordeezy (not verified) Tue, 06/20/2017 - 01:26 Permalink

They want us all to depend on central banks for liquidity so that eventually everyone will be beholden to the central banks of the world and they will dictate all policies instead of the governments that seemingly control the nations..... oh wait that has already happened. my bad