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Monday, July 20, 2009

China: Having Difficulty Raising Debt

FN: This is the third failure in two weeks. The government will now spring into action and apply some heavy handed solutions... but the point remains: It is becoming more and more difficult to raise massive amounts of debt. It is simple really. Every country in the world is raising record amounts of debt. That just can't work out. The math won't allow it. The savings aren't there and where they are, they are already deployed. This means they have to be pulled from such things as equities... eventually... to finance this debt.

Worse yet, if the Chinese can't secure funding internally for their debt they will eventually have to convert some of their dollar holdings back into Yuan. That means they'll have to sell US Treasuries first, and then sell US dollars to buy Yuan.

China Fails to Complete 20 Bln Yuan of Bill Sales, Traders Say: "China’s finance ministry failed to meet its debt-sale target for a third time in two weeks at a 182- day bill sale, according to traders at Galaxy Securities Co. and China Citic Bank in Beijing. The ministry had tried to sell 20 billion yuan of bills and only sold 18.51 billion yuan, traders said. The average yield for the bills sold was 1.6011 percent, they said.

The average yield was 21 basis points higher than the 1.39 percent in secondary market trading yesterday, based on rates compiled by Chinabond, the nation’s biggest debt-clearing house. The government last sold similar-maturity bills on June 19 at 0.85 percent. A basis point is 0.01 percentage point."

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