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Failed Bond Auction In China

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Doomberg LINK:

China Debt Auction Falls Short on Inflation Concern

China failed to sell all 28 billion yuan ($4.1 billion) of one-year government bonds it offered at an auction today on speculation the central bank will curb money supply growth to reduce inflation pressures.

The Ministry of Finance sold 27.5 billion yuan of the notes at a yield of 1.06 percent, compared with 0.89 percent at the last auction of similar maturity debt in May, according to a statement on the Web site of Chinabond, the nation’s biggest debt-clearing house. The rate was higher than the median estimate of 1.05 percent in a Bloomberg News survey of analysts.

“The failure to sell all government bonds in an auction is quite rare,†said Nie Shuguang, a fixed-income analyst at Industrial Bank Co. in Shanghai. “Investors are worried the central bank will fine-tune its monetary policy and drain capital from the financial market.â€

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Guest DissipatedYouthIsValuable

Is Cygnet a new distributed Unix-like system architecture for Windows PCs?

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Why are they selling debt when they've got so much of everyone else's debt?

China's central bank (the PBC) 'prints' Yuan so it can purchase other currencies (mainly dollars) as part of its fx intervention. This in order to keep the Yuan pegged in a desired trading band. This in turn causes the domestic money to supply to rise, so in order to drain this printed money the PBC 'sterilises' it through open market operations by selling bonds to investors.

Keeping a lid on inflation has been a constant problem for the PBC due to China's foreign exchange policy.

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Is Cygnet a new distributed Unix-like system architecture for Windows PCs?

:lol:

Yes its sometimes goes by the name of Red Hot Linux.

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Guest DissipatedYouthIsValuable
:lol:

Yes its sometimes goes by the name of Red Hot Linux.

Not Yerrow Dog?

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China's central bank (the PBC) 'prints' Yuan so it can purchase other currencies (mainly dollars) as part of its fx intervention. This in order to keep the Yuan pegged in a desired trading band. This in turn causes the domestic money to supply to rise, so in order to drain this printed money the PBC 'sterilises' it through open market operations by selling bonds to investors.

Keeping a lid on inflation has been a constant problem for the PBC due to China's foreign exchange policy.

So will they have to offer a higher return on those bonds they have to sell?

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China's central bank (the PBC) 'prints' Yuan so it can purchase other currencies (mainly dollars) as part of its fx intervention. This in order to keep the Yuan pegged in a desired trading band. This in turn causes the domestic money to supply to rise, so in order to drain this printed money the PBC 'sterilises' it through open market operations by selling bonds to investors.

Keeping a lid on inflation has been a constant problem for the PBC due to China's foreign exchange policy.

Are you suggesting this could lead to the Yuan being revalued upwards FT?

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Are you suggesting this could lead to the Yuan being revalued upwards FT?

I don't see that as an immediate prospect RK. The last thing China will be wanting at present is an additional hit to export demand.

AFAIK, the PBC has been running a pretty loose policy recently, actually injecting liquidity much like the BoE over here. It sounds like they may be planning to reverse this.

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Yep.

I wonder what effect this will have on other sellers of Government bonds.

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China's central bank (the PBC) 'prints' Yuan so it can purchase other currencies (mainly dollars) as part of its fx intervention. This in order to keep the Yuan pegged in a desired trading band. This in turn causes the domestic money to supply to rise, so in order to drain this printed money the PBC 'sterilises' it through open market operations by selling bonds to investors.

Keeping a lid on inflation has been a constant problem for the PBC due to China's foreign exchange policy.

And it seems the problem is getting more difficult to resolve......................

http://www.bloomberg.com/apps/news?pid=206...id=aBI.ieOGdX.g

China Debt Auction Demand Falls Short for Third Time

By Bloomberg News

July 17

China's government failed to sell as much debt as it planned for the third time in two weeks on speculation the central bank will push up money-market rates to prevent bubbles in stock and property prices......

Traditionally (going back over the last few centuries) financial meltdown in London and/or New York happened in two stages. Firstly domestic banks etc melted down and ruined the domestic economies. As domestic spending collapsed, imports of commodities and cheap manufactures collapsed. This then caused the second stage which was serial sovereign defaults in poorer countries who could no longer finance the huge debts (to London/NY) built up in the proceeding lax credit / commodity boom environment. This normally then feeds back into a second wave of massive losses in NY-Lon banks.

To date phase two has singularly failed to arrive (assuming you don't count Iceland) partly because the EU/IMF are quietly backstopping the whole of Eastern Europe, but mostly because manic Chinese spending of their very substantial reserves has allowed China to become the commodity importer of last resort, so keeping most of South America, Africa and substantial parts of Asia (not to mention Australia, Canada and Russia) afloat.

While I had forseen the bond vigilantes stepping in to spoil the fun in the US/UK; before Freetrader's very enlightening post, I hadn't realised the BV's would be able to p!ss on the chips of a magnificently run communist dictatorship economy.

So what are China's choices? I am no expert but it appears they can either; ramp up IR's so they can sell their bonds, so destroying demand and destroying growth in their economy. Or they can stop selling bonds, and allow the yuan to appreciate, so destroying exports and destroying growth in their economy.

And if growth in China collapses, or even stutters, commodity prices collapse and stage two kicks in with a vengeance.

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And it seems the problem is getting more difficult to resolve......................

http://www.bloomberg.com/apps/news?pid=206...id=aBI.ieOGdX.g

Traditionally (going back over the last few centuries) financial meltdown in London and/or New York happened in two stages. Firstly domestic banks etc melted down and ruined the domestic economies. As domestic spending collapsed, imports of commodities and cheap manufactures collapsed. This then caused the second stage which was serial sovereign defaults in poorer countries who could no longer finance the huge debts (to London/NY) built up in the proceeding lax credit / commodity boom environment. This normally then feeds back into a second wave of massive losses in NY-Lon banks.

To date phase two has singularly failed to arrive (assuming you don't count Iceland) partly because the EU/IMF are quietly backstopping the whole of Eastern Europe, but mostly because manic Chinese spending of their very substantial reserves has allowed China to become the commodity importer of last resort, so keeping most of South America, Africa and substantial parts of Asia (not to mention Australia, Canada and Russia) afloat.

While I had forseen the bond vigilantes stepping in to spoil the fun in the US/UK; before Freetrader's very enlightening post, I hadn't realised the BV's would be able to p!ss on the chips of a magnificently run communist dictatorship economy.

So what are China's choices? I am no expert but it appears they can either; ramp up IR's so they can sell their bonds, so destroying demand and destroying growth in their economy. Or they can stop selling bonds, and allow the yuan to appreciate, so destroying exports and destroying growth in their economy.

And if growth in China collapses, or even stutters, commodity prices collapse and stage two kicks in with a vengeance.

Considering China is reported to have $2tr in foriegn reserves why bother selling these bonds?

Could the BV be moving against China?

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Bumpity.......

Denninger picks it up too

http://market-ticker.org/archives/1228-Bla...Sale-Fails.html

The media is almost-entirely ignoring this little piece of nasty news:

July 17 (Bloomberg) -- China’s finance ministry failed to meet its debt-sale target for a third time in two weeks at a 182- day bill sale, according to traders at Galaxy Securities Co. and China Citic Bank in Beijing. The ministry had tried to sell 20 billion yuan of bills and only sold 18.51 billion yuan, traders said. The average yield for the bills sold was 1.6011 percent, they said.

Here's the problem - The Chinese, if unable to fund their operating expenses with debt sales, will be forced to sell something - like US Treasuries - to do so.

These failed auctions have also come with fairly significant "tails", or increased interest coupon demands from the buyers. This in turn is a clear statement by the buyers that interest rates are too low.

Feel that squeeze yet, Mr. Chinaman? This is the push-back from the "stimulus" and "easy money" policy, and it is now showing up in China.

One way or another this winds up hurting, and if the Chinese start to sidle toward the door with their Treasuries, it could hurt over here in the United States hard and fast.

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Fascinating stuff. Endless unintended consequences. You just can't keep whacking all those moles down.

Wonderful imagery Durch.

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And it seems the problem is getting more difficult to resolve......................

http://www.bloomberg.com/apps/news?pid=206...id=aBI.ieOGdX.g

While I had forseen the bond vigilantes stepping in to spoil the fun in the US/UK; before Freetrader's very enlightening post, I hadn't realised the BV's would be able to p!ss on the chips of a magnificently run communist dictatorship economy.

Great post. BV is a great acronym, as it also stands for Bacterial Vaginosis. There's always been something a bit fishy about those bond vigilantes

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The 3rd failed auction in China over the past few weeks. :ph34r:

The difference being that the chinese can have them and keep on trucking.

Reckon the BoE, ECB or the Fed could have 3 failures in quick succession without the sky falling in?

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Bringing out the big guns now. Turbo Timmy obviously didn't get the message across on the last trip.

July 16 (Bloomberg) -- Federal Reserve Chairman Ben S. Bernanke will brief Chinese officials at a summit this month about how the U.S. plans to keep inflation in check over the next few years, according to people advised on the plans.

The Obama administration was enlisting Bernanke to try to assuage Chinese concerns about long-term U.S. economic health, people at the meeting said on condition of anonymity.

http://www.bloomberg.com/apps/news?pid=206...id=acKqfY9gY1PM

:ph34r:

Edited by MOP

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Wild hypothesis.

Could it be the BV think that China doesn't have the stated $2tr reserves?

Or is it more a case of the BV think China is going to have a huge inflation problem because of it's stimulus package?

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