ZT--China, ECB Gov't Bond Auctions Fail;

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Gold and silver are up sharply with bank auction failures in China and Europe today. Interbank lending rates in China doubled in a week and hit a three-year high of 5.67% vs. the failed auction on 91-day securities yielding 3.68%. This was the Second China Failure This Month To Complete Bill Sale.

    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.

    “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 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.”

    “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.