China Cash Crunch: 1-Day Interest Rate Spikes to Record High 25%

The clampdown on China's shadow banking continues today, with Money Rates at Record Highs as PBOC Lets Cash Crunch Build

China’s benchmark money-market rates climbed to records as the central bank refrained from using reverse-repurchase agreements to address a cash crunch in the world’s second-biggest economy.

The seven-day repurchase rate, which measures interbank funding availability, rose 270 basis points, or 2.70 percentage points, to 10.77 percent in Shanghai, according to a daily fixing announced by the National Interbank Funding Center. That was the highest in data going back to March 2003. The one-day rate rose by an unprecedented 527 basis points to an all-time high of 12.85 percent, a separate fixing showed. An intra-day gauge of the one-day rate touched a record 25 percent.

Deposit Auction

Banks paid 6.5 percent for 40 billion yuan of six-month deposits from the Finance Ministry at an auction today, the highest rate since March 2012 and up from 4.8 percent at the previous sale on May 23.

The yield on one-year government bonds surged 56 basis points to 4 percent, according to the National Interbank Funding Center. That’s the highest level on record for a benchmark note of that maturity.

The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repo rate, rose 46 basis points to 4.95 percent as of 1:07 p.m. in Shanghai, according to data compiled by Bloomberg. It jumped a record 51 basis points yesterday and touched an all-time high of 4.99 percent today.

Shadow Banking Clampdown

Charlene Chu, head of Fitch's China financial institutions estimated China’s total credit, including off-balance-sheet loans, swelled to 198 percent of GDP in 2012 from 125 percent four years earlier. That percentage exceeded ratios preceding banking crises in Japan and South Korea.

It appears as if China is finally serious about its shadow banking problem (and that's a good thing ) yet it's far too late to prevent an economic implosion.

For more on the huge impending slowdown in China please see

• Pettis on China, Europe, Japan: Bad News for Those Looking for Growth
• Epic Glut of Graduates Depresses Wages; Fake Job Offers Taint Hiring Statistics
• Cash Squeeze in China, Interest Rate Swaps Rise Most in 22 Months; China's Credit Bubble About to Pop; Shadow Banking Crackdown

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

China Manufacturing PMI Hits Nine-Month Low as Output and New Orders Decline

The HSBC Flash China Manufacturing PMI™ is in contraction, at a nine-month low, with output and new orders in decline.

Key points

• Flash China Manufacturing PMI™ at 48.3 (49.2 in May). Nine-month low.
• Flash China Manufacturing Output Index at 48.8 (50.7 in May). Eight-month low.

China Flash Manufacturing PMI™ Summary



Production/Exports/PMI

Those bullish on China growth prospects need to reconsider.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Fed Keeps Low-Rate Policy Intact; Treasury Yields Spike Anyway; Hissy Fit Over Fluff

Curve Watchers Anonymous has a close eye on treasury yields in the wake of essentially no news from Bernanke as to when the Fed might actually begin hiking rates.

A mere hint the Fed might slow its QE program was enough to send treasury yields and the US dollar higher and stocks lower.

Yield Curve 2013-06-19



click on chart for sharper image

Curve Watchers Anonymous notes the yield on the 10-year note is up 13 basis points from yesterday, and the 5-year note is up 17 basis points from yesterday.

Here are some charts  Yields are off by a factor of 10. For example 5-year treasury yield is 1.27% not 12.27%. Note the selloff (rise in yield) the mid-day moment Bernanke opened his mouth.

$FVX - 5-Year Treasury Note



$TNX - 10-Year Treasury Note



$TYX - 30-Year Treasury Bond



These are significant selloff in this environment.

So what did the Fed say?

Nothing. At least nothing the market should not have expected.

Bloomberg reports Bernanke Says Fed on Course to End Asset Buying in Mid-2014.

Federal Reserve Chairman Ben S. Bernanke said the central bank may start reducing bond purchases later this year and end them in mid-2014 if the economy continues to improve as the central bank forecasts.

“If the incoming data are broadly consistent with this forecast, the committee currently anticipates that it would be appropriate to moderate the pace of purchases later this year,” Bernanke said today in a press conference in Washington. “If the subsequent data remain broadly aligned with our current expectations for the economy, we will continue to reduce the pace of purchases in measured steps through the first half of next year, ending purchases around mid-year.”

Bernanke stressed that the Fed has “no deterministic or fixed plan” to end asset purchases.

“If you draw the conclusion that I just said that our policies -- that our purchases will end in the middle of next year, you’ve drawn the wrong conclusion, because our purchases are tied to what happens in the economy,” he said. “If the economy does not improve along the lines that we expect, we will provide additional support.”

The Fed repeated that it will keep buying assets “until the outlook for the labor market has improved substantially.”

Hissy Fit Over Fluff

Over that bit of nonsensical fluff (completely expected as well as frequently repeated fluff at that), the bond and stock markets threw a hissy fit.

This is further evidence the current markets are all about liquidity and speculation and nothing about fundamentals (in case you did not realize that already).

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com