WSJ on Warning Lights in China's MM
Earlier this week, The Wall Street Journal wrote, "Warning Lights Are Flashing in China’s Money Market." The article says, "While the world has been focused on the U.S.-China trade conflict, another threat -- potentially just as large -- has been brewing beneath the surface of China's financial system. On Sunday, the country's securities regulator convened a meeting asking big brokerages and funds to support their smaller peers, according to a meeting summary circulated among industry participants Monday. The briefing cited rising risk aversion in money markets after defaults in the bond repurchase market. Some interbank lending rates have moved sharply higher in recent weeks. China's short-term lending market for banks and other financial institutions has for years operated under the assumption that Beijing wouldn't allow big losses in the event of defaults or insolvencies. That confidence has been shaken by regulators' unusual public takeover of a small, troubled bank in northern China last month -- and the even more unusual public admission by the central bank that not all of Baoshang Bank's liabilities would necessarily be guaranteed." The Journal adds, "Worryingly, problems appear to be migrating from the relatively small market for negotiable certificates of deposit (NCDs) -- used primarily by small banks -- into the much larger bond repo market. Although key one-day and seven-day weighted average borrowing rates remain low, thanks to huge central bank cash injections, longer tenors have marched sharply higher."
