People's Bank of China

With the PBOC fighting tooth and nail to slow outbound capital flight, which according to Goldman has reached $1.1 trillion since August 2015, and which these days mostly means keeping the Yuan from depreciating to new all time lows below 7 Yuan to the Dollar, the Chinese central bank may have its work cut out for it in the immediate future. The reason is that, as Bloomberg reminds us, the first day of 2017 is when an annual $50,000 quota to convert the yuan into foreign exchange resets, stoking concern there will be a rush to sell the local currency.

The danger signs are building up for the Chinese bond market.

First, last Thursday, Chinese bond futures crashed by the most on record forcing China's regulator to briefly halt trading in the security until the panic fades.

Then, on Friday, a Chinese bill auction technically "failed" when it was unable to find enough buyers for the total amount offered for sale.

Two months ago, when looking at an alternative measure of Chinese capital outflows using SAFE data, Goldman found that contrary to official PBOC reserve data, "China's Capital Outflows Are Soaring Again", having hit $78 billion in September.

China is finding itself in an increasingly more untenable situation, trapped on one hand by its sliding currency (and declining reserves), which as noted earlier it has manipulated higher by forcing overnight unsecured rates to spike, in the process punishing  "speculators" and other shorts...

Submitted by Koos Jansen, BullionStar.com.