| inbluevt | Date: Friday, 2013/06/21, 10:24 PM | Message # 1 | DMCA |
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The cost of insuring against a default on Chinese sovereign debt soared on Thursday as China's central bank worsened a credit squeeze by refusing to inject cash into the financial system.
Credit default swaps (CDS) on five-year bonds rose by 33 basis points to
133bps, according to financial data firm Markit, as Chinese officials
signalled a determination to rein in risky lending practices.
The People's Bank of China increased the pressure on lenders this week by
removing Rmb2bn (£211m) from the market amid mounting concerns over the
sustainability of a credit boom driven by the Chinese shadow banking
system.
The announcement had an immediate impact: short-term interest rates spiked and the sale of 10-year government bonds hit its lowest level since last year. Interbank borrowing costs hit their highest level
in six years, while the Hang Seng index in Hong Kong and the Shanghai
SE Composite Index both dropped by nearly 3%.Markit's director of credit research, Gavan Nolan, said the CDS widening was a "huge move".
He said: "Only at the peak of the financial crisis have we seen moves of this size." The CDS jump means that the cost of insuring against a default on $10m of Chinese sovereign debt has climbed overnight from
$100,000 to $133,000.
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Message edited by inbluevt - Friday, 2013/06/21, 10:26 PM |
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