Saturday, 22 June 2013

Chinese credit problems?

It's no surprise that China has a lot of hurdles to overcome in the coming 6-12 months in terms of a potential credit crisis, the early tremors can be felt by looking at the overnight SHIBOR rate which recently spiked to 13.44% from a YTD average around 3%.

From the telegraph - here

Half the Loans must be rolled over every 3 month, and another 25% in less than 6 months. This echoes Northern Rock and Lehman bro's.

The chinese financial system may be as high as 221pc of GDP, jumping almost eightfold over the last decade, and warned that companies to fork out $1 trillion in interest payment alone this year.

These comments reflect the current and fast growing instability in the Chinese credit markets and there are even more disturbing correlation to draw with the US of 2006/07

This the flattening Chinese yield curve represented through the 2s10s, once shifted a very similar pattern in the Chinese 2s10s emerges that is analogous to the US 2s10s pre-2008.


On the bottom pane is the spread between the SHIBOR overnight rate and the Chinese 2 year yield, normally negative (representing higher yield on bond vs SHIBOR) but in the past few weeks there has been a substantial spike higher.

This could just be a happy coincidence but to quote Fitch

Chinas credit bubble unprecedented in modern world history

This could be more of a problem then some may have previously thought......

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