To be fair, Portugal should chip in.

China Fails to Complete 91-Day Treasury Bill Sale as Cash Crunch Worsens
By Bloomberg News - Dec 24, 2010 4:17 AM ET

China Fails Complete Bill Sale for Second Time One Month

China’s government failed to draw enough demand at a bill sale for the second time in a month as seasonal demand for funds and higher reserve-requirement ratios left banks with less cash. Photographer: Nelson Ching/Bloomberg

China’s government failed to draw enough demand at a bill sale for the second time in a month as seasonal demand for funds and higher reserve-requirement ratios left banks with less cash.

The finance ministry sold 16.76 billion yuan ($2.53 billion) of 91-day securities, falling short of the planned 20 billion yuan target, according to a statement on the website of Chinabond, the nation’s biggest debt-clearing house. The average winning yield was 3.68 percent, higher than the 3.22 percent rate for similar-maturity debt in the secondary market yesterday.

China needs to return to a “prudent monetary policy” to curb prices and control money supply, the People’s Bank of China said in a statement posted on its website today. While inflation pressures are rising, regulators will allow reasonable growth in lending, the statement said.

“Banks are badly short of cash,” said Qu Qing, a bond analyst at Shenyin Wanguo Securities Co. in Shanghai. “Given the cash squeeze, the central bank probably won’t announce any tightening measure by the end of this year.”

The seven-day repurchase rate, which measures lending costs between banks, has more than doubled in the past two weeks and yesterday reached a three-year high of 5.67 percent, according to daily fixings published at 11 a.m. by the National Interbank Funding Center. The rate slid seven basis points today to 5.60 percent.

Rate Swaps

The one-year interest-rate swap, the fixed cost to recieve floating payments, has dropped 25 basis points from a two-year high touched on Nov. 29, reflecting easing speculation the central bank will raise interest rates as the cash crunch worsened. The rate fell one basis point today to 3.14 percent. Policy makers on Dec. 10 ordered lenders to set aside more money as reserves for the third time in five weeks to contain inflation.

The cash shortage has also sapped demand for bills sold by the central bank. The monetary authority has sold 1 billion yuan of one-year bills at each of its last four weekly auctions, the lowest sales amounts since October 2007.

“The market is desperate for cash,” said Chen Liang, a bond analyst at Guohai Securities Co. in Shenzhen. “It’s too costly to park money with debt at such a price given the seven- day repo rate has risen above 5 percent.”

Accelerating Inflation

The yield on the 3.67 percent note due October 2020 was little changed at 3.81 percent, and the price of the security was at 98.89, according to the China Interbank Bond Market.

The finance ministry sold 11.55 billion yuan of 91-day bills on Nov. 26, less than the planned 20 billion yuan. The average yield was 2.74 percent. China’s inflation accelerated to a 28-month high of 5.1 percent in November, the statistics bureau said on Dec. 11.

The yuan has risen 0.3 percent since Dec. 6, when 30 senators sent a letter to Chinese Vice Premier Wang Qishan calling for the yuan to “appreciate meaningfully” before President Hu Jintao’s visit to Washington next month.

The currency strengthened 0.24 percent to 6.6270 per dollar as of the 4:30 p.m. close, the biggest advance since Nov. 9, according to the China Foreign Exchange Trade System. It’s risen 0.43 percent in the week, the biggest weekly gain since October.

“Some banks may be buying the local currency in the foreign-exchange market because it’s hard to borrow money in the fixed income,” said Li Tao, a foreign exchange trader at Shenzhen Development Bank Co. in Shenzhen. “There is also concern the appreciation may get quicker before President Hu’s visit.”

Twelve-month non-deliverable forwards climbed 0.13 percent to 6.4993 per dollar, reflecting bets the currency will strengthen 2 percent in one year, according to data compiled by Bloomberg.

http://www.bloomberg.com/news/2010-...reasury-bills-amid-cash-squeeze-at-banks.html