“The market is desperate for cash,” said Chen Liang, a bond analyst at Guohai Securities Co. in Shenzhen. “It’s too costly to park money with the debt at such a price given the seven-day repo rate has risen above 5 percent.”
It is not too hard to figure out why this is happening. China in paying 3-4% on 91 day bills, but is paying over 5% on the 7 day repo market. Who in their right mind would buy any of the 91 day paper?
The finance ministry sold 16.76 billion yuan ($2.53 billion) of 91-day securities, falling short of the planned 20 billion yuan target, according to traders at the lead underwriters of government debt, who asked not to be identified. The average winning yield was 3.68 percent, higher than the 3.22 percent rate for similar-maturity debt in the secondary market yesterday.
It is little wonder that China is having multi failed bond issues lately. What is interesting is what happens when this starts to affect how China can do business both internally and externally at the same time. While they don’t need the funds now, this is a sign of a system that is breaking down due to many variables out of whack with where they should be.
Growth, for just growths sake, is not a solution to a nations problems. When China stabilizes its growth patterns, nations like Australia are going to be hurting bad. In fact, Australia the nation, just might be the Short of 2011.
I find it ironic that China is going to be Europe’s savior, after the US FED has provided their central banks and bankers with lines of credit after lines of credit. Trillions in capital were loaned to European organizations in 2008, as needed.
I would not be surprised if Europe is the catalyst that drags down China’s growth rates, and that is what slows down Asian organic growth in 2011-2012. The BRIC nations as a block are already showing signs of slowing down in my opinion.
China has now had three failed bond issues in the last year or so, with 2 in the last month. While they don’t have to have the cash now, this is not a pattern that continue for long, before real world implications hit home.