Europe is now openly burning once again (Italy-Bund spreads just hit a new record), the US is 9 days away from being bankrupt, and completing the trifecta is China, which just failed to sell half of the proposed 50 billion in CNY of local government debt at an auction, courtesy of the SHIBOR supernova which oddly only Zero Hedge has been covering. From Bloomberg: “China’s finance ministry failed to sell all of the three-year debt offered at an auction on behalf of local governments as a cash crunch curbed demand. The ministry sold 23.9 billion yuan ($3.7 billion) of bonds at a yield of 3.93 percent on behalf of 11 provinces and municipalities, falling short of its 25 billion yuan target, said a trader at a finance company required to bid at the auction. The Shanghai interbank offered rate, or Shibor, for three-month yuan loans, was fixed at 6.24 percent today, near a record high of 6.46 percent reached on June 28. “While the interbank borrowing cost is so high, investors won’t spend money on local government debt,” said Huang Yanhong, a bond analyst at Bank of Nanjing Co. in Nanjing. “Demand is low also because the debt’s secondary-market trading isn’t active. After you buy it, you can only hold it till maturity.” Who would have possibly thought that 7 week money costing 7% and more could have implications and stuff…
Not helping things is last week’s interest rate hike: “Demand for debt is also cooling after the central bank raised its benchmark one-year lending and deposit rates last week for the third time this year to help stem gains in consumer prices. Inflation accelerated to a three-year high of 6.4 percent in June, from 5.5 percent in May, the statistics bureau said on July 9. Last week, the finance ministry failed to sell all of the bonds offered at an auction of 182-day bills. The ministry also sold less debt than planned at a June 17 auction of one-year notes, and sales of 182-day bills and one-year bonds on May 13.” Bottom line: while you were sleeping, the financial crisis just went global.
The central government will sell 200 billion yuan of bonds on behalf of local authorities this year. Today’s auction was the first involving this type of debt in 2011 and 25.4 billion yuan of five-year notes were sold at a yield of 3.84 percent.
The finance ministry in January published a list of 59 underwriters required to bid at its debt sales, including Industrial & Commercial Bank of China Ltd., Agricultural Bank of China Ltd., Bank of China Ltd., China Construction Bank Corp., China Citic Bank Corp., Postal Savings Bank of China, Industrial Bank Co., Guotai Junan Securities Co. and BOC International (China) Ltd.
Good luck with that “mandatory” issuance. Unlike in the US, China’s “Primary Dealer” equivalents apparently have no idea that their primary job is to keep the ponzi illusion going. Surely our 20 or so status quo perpetuators can teach their Chinese colleagues a thing or two about keeping your head stuck in the sand.