Concerns about SHIBOR are suddenly all the rage.
Rick Santelli was just on CNBC talking about it. Zero Hedge wrote about a Morgan Stanley report on it moments ago.
This problem has been developing for weeks. Waverly Advisors have been talking about it for a long-time now.
Here’s what Morgan Stanley have to say about the threat of the spike (via Zero Hedge, emphasis ours):
What’s next: Given the surging interbank rates and heightened expectation of further rate hikes, the liquidity management function of open market operations will likely remain paralysed unless the reference yields are lifted aggressively to restore the attractiveness of bill issuances. Since the amount of matured bills should rebound significantly in January (Exhibit 5), the risk of an RRR hike (or differential RRR hike) is rising.
But just how insane has the spike been? We’re not quite at financial crisis levels.
But what makes these two events different? Waverly Advisors say that what we’re seeing right now is a structural change in the Chinese rates situation. Yes, there’s a liquidity problem along with it, but it is nothing like 2007, when the situation in short-term liquidity went insane. This is about a change in absolute rates, not just a liquidity spike. And that means we’re not going to see a similar massive selloff in equities, like we did then.
Here’s a chart Waverly Advisors had lying around and sent over to us. It shows this spike in comparison to what happened in 2007, and major Chinese equities.
Photo: Waverly Advisors