This is something New Zealanders SHOULD be paying attention to. Not the comments about Australian banks
Chinese Sovereign Risk Spikes Most Since Lehman
25 June, 2013
With the nation's short-term funding markets in crisis mode - no matter how much they are jawboned about temporary seasonal factors- it seems yet another indicator of stress is flashing the red warning signal. China's sovereign CDS has spiked by the most since Lehman in the last 3 days - up 55% to 140bps. This is the highest spread (risk) in 18 months and looks eerily similar to the period around the US liquidity market freeze. Hedging individual Chinese bank counterparty risk is hard (given illiquidty) and so it would seem traders are proxying general risk of failure via the nation's sovereign risk (and stocks which also languish at post-Lehman lows). On a related note, Aussie banks have seen their credit risk rise 50% in the last month as they suffer domestically and from the China contagion.
China's 5Y CDS spiked to 18 month highs...
as CDS is tracking 1-month SHIBOR extremely closely...
and the more liquid derivative play on this weakness - Aussie Bank CDS (pressure by domestic and Chinese issues)...
China Acts to Calm Markets; Stock Market Rebounds From 6% Plunge After Central Bank Pledges More Liquidity; Wet Nurse Action
China has pledged to backstop banks suffering from cash shortfalls, giving rattled investors hope the country’s money squeeze could be nearing an end.
The statement by the People’s Bank of China on Tuesday was the clearest attempt yet by the government to calm the turmoil that has shaken global markets over the past week and fuelled concerns that the world’s second-biggest economy could be on the verge of a credit crisis.
“If banks have temporary shortages in their planned funding, the central bank will give them liquidity support,” it said in the statement. “If institutions have problems in managing their liquidity, the central bank will apply appropriate measures under the circumstances to maintain the overall stability of money markets.”
In its latest statement, the central bank said money markets were already on the mend after interbank rates spiked to double digits last week. It noted that the overnight bond repurchase rate had fallen to 5.83 per cent, more than half what they were last week, though still about twice as high as normal.
“Several strong banks have already started to play an important role in providing funds to the market and stabilising interest rates,” it said.
A commentary earlier on Tuesday in the People’s Daily, official newspaper of the Communist party, called on authorities to continue an unyielding stance.
“The central bank is not a wet nurse to the stock market. If it saves the stock market, it will in fact be harming it,” the paper wrote.