zerohedge.com / by Tyler Durden / Mar 26, 2017 8:26 PM
While most traders over the past month have been obsessing over developments in Washington, the real action – most of it under the radar – has played out in China, where as discussed over the past few weeks, domestic liquidity has tightened notably, culminating with an unexpected bailout by the PBOC of various smaller banks who defaulted on their interbank loans as interested rates particularly on Certificates of Deposit (CD) – which have become a preferred funding conduit for many Chinese banks – soared. Ironically, these mini PBOC bailouts took place only after the PBOC itself decided to tighten conditions sufficient to choke off much of the shadow debt funding China’s traditional banks.
As a result, the interbank CD rate rallied strongly, leaving a narrower or negative spread for some smaller banks, whose legacy carry trades (see below for details) suddenly became unprofitable. Also, as reported last Tuesday, several small banks failed to meet overnight repo obligations. This liquidity tightness has been mainly due to escalating financial deleveraging, as the PBOC has lifted market rates and rolled out stricter macroprudential policy
Read more ... source: The Bitcoin Channel
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