China’s financial markets “hooked” on liquidity injections, got another shot in the arm with 255 billion yuan of reverse-repurchase agreements by the People’s Bank of China to to large commercial banks
From Bloomberg:
China’s benchmark money-market rate fell while stocks rebounded as the central bank added more than 255 billion yuan ($42 billion) to the financial system and expanded a loan facility to meet Lunar New Year demand for cash.The seven-day repurchase rate, a gauge of interbank funding availability, dropped 88 basis points to 5.44 percent in Shanghai, according to a daily fixing compiled by the National Interbank Funding Center.
China’s 7 day repo rate (china money.com) has declined on PBoC’s injection (green ellipse).
Media says that this measure will “reduce risk in the interbank market and help restore confidence as concern mounts about potential defaults” and that “Money-market rates typically spike before the new year break, a period in which cash gifts are made and families get together for celebratory feasts”
The above picture tells of a vastly different story. Those blue arrows on top reveal of the episodes of “major” short term liquidity squeezes over the past year. The (blue) trend line also reveals of a seeming increase in repo rates since the last quarter of 2013.
Rising frequency of incidences of liquidity turmoil and the seeming gradual build up in the magnitude (expressed via rising trend of repo rates) seem like mounting pressures looking for an outlet valve to ventilate. They seem hardly about celebratory feasts, instead they seem as writing on the wall for a Black Swan.
Curiously despite the action by the PBoC, yields of China’s 10 year bonds remain in a consolidation mode at recent highs.
China’s stock market investors nevertheless cheer the same theme of more "bad news is good news" [I see this as an oversold bounce]. And so with the ASEAN counterparts.
Yet the PBoC’s liquidity injection and declining yields of US treasury notes appear to have hardly calmed ASEAN bond markets which continues to show weakness via higher yields (yes Philippine treasury yields seem as rising today from 1 year through 20 year curve. 10 year at 4.3%). Such has also been expressed via their respective currencies (the USD-Philippine peso is 45.2+ from Friday's 45). Rising stocks amidst rising treasury yields and falling currency represents a widening of unsustainable divergences.
Well, stock market investors see none of these as risks: again symptoms of what I call as the Aldous Huxley “Facts do not cease to exist because they are ignored” syndrome.
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