Chinese funding squeezed

As we know, China has a funding gap:

China’s government is expected to sell bonds worth more than $340 billion for the rest of this year, according to Bloomberg calculations, as it taps the remaining annual quota and refinances maturing special bonds.

A total of 2.45 trillion yuan in sovereign bonds will likely be issued in October-December, made up of about 1.66 trillion yuan of new bonds and nearly 786 billion yuan to refinance some maturing special debt.

As we know, CNY has been absolutely smashed:

And the yield spread to the US, especially at the long-end of the curve, is about as bloody as anyone can remember:

So, what’s the incentive for foreign capital to buy these bonds? Not much.

Unsurprisingly, yields have been rising recently despite the terrible growth outlook:

And the China CDS price is on someting of a tear:

China may complete its Japanese transition by the PBoC adding yield curve control!