The Other Chinese Interest Rate Nobody Is Talking About: China 5Y Bond Yield Surges

August 14, 2013 Leave a comment

The Other Chinese Interest Rate Nobody Is Talking About

Tyler Durden on 08/13/2013 18:54 -0400

20130813_chinarepo_0

While all the attention of the world’s investing public – focused on the short-term repo markets in China – has been ameliorated by the PBOC’s ‘fold’ thanks to ~CNY600bn in liquidity provision (or an equivalent 65bp RRR cut), liquidity concerns remain high (and not so hidden if one knows where to look). Not only has there been a surge in copper imports – based on the cash-for-copper deals replacing short-term funding but concerns raised by investors and the PBOC over duration mismatches (exposed by the recent crisis) has forced Chinese banks to seek longer-term funding. Banks are now raising longer-term deposit rates in order to attract stickier term-deposits and this is causing medium-term Chinese bond yields to surge. While inflation remains ‘under control’ (if one looks at the official data – as opposed to reality), growth hopes and inflation fears may also be impacting Chinese bonds though the timing suggests this remains evidence of a Chinese banking system in distress. And so, in a vicious circular manner, the cost of funding for Chinese firms is rising rapidly; implying (all things being equal) that end-users’ pocket books will be pressured as firms are forced to raise prices (raising inflationary expectations) and driving interest-rates up still further. The margin compression that banks alone will suffer will also mean more PBOC liquidity will be needed as capital floods out on risk-aversion.

 

Filed under Macro Trends

Unknown's avatarAbout bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

Leave a comment