PBOC Steps In, Shanghai Composite Gives up 3 Days of Gains

Early Tuesday the story was the PBOC stood by on Monday and let the market take the yuan lower. On Tuesday, the PBOC and regulators chipped in, with the PBOC following the market lower and weakening the yuan.

China bond yields spike after corporate debt market crackdown
China Development Bank bond yields rose nearly 30 basis points at market open on Tuesday, traders said, as the market reacted to new corporate bond market restrictions announced on Monday afternoon.

The benchmark government bond future contract also reacted, sliding over 1 percent in morning trade.

China's official bond clearing house surprised traders when it clamped down on the corporate bond market on Monday, excluding about 500 billion yuan ($81 billion) worth of corporate bonds from being used for bond repurchase agreements.

China Stocks, Currency and Corporate Bonds Fall
The selloff started in the bond market, as traders rushed to sell and raise cash after a regulator banned investors from using low-grade corporate debt as collateral to borrow cash. The turmoil then spread to the yuan, which recorded its biggest two-day tumble ever. Later, the benchmark Shanghai index slumped 5.4% to record its biggest fall since 2009.

....According to estimates from Shenyin Wanguo Securities, the total value of corporate bonds disqualified as repo collateral under the new rule exceeds 1.25 trillion yuan, or 60% of all outstanding corporate bonds listed on China’s two stock exchanges.

I like this line:
The sudden moves serve as a reminder to global investors about the country’s shaky finances, just as China opens up its capital markets more to overseas cash.
Does it remind you of China's shaky finances, or does it remind you that China's regulators sometimes do their jobs?

The biggest plunge in the Shanghai Composite since 2009 erased a whole 3 days of trading. The index closed at levels above its December 3 close. Have the regulators shaken the "mad cow" out the market?

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