Thread by @AnalystDC

While I was distracted with the $GME drama, it appears that not all has been calm in China's repo market, with repo rates in the overnight market spiking to levels not seen in quite a few years...

This article has a pretty good background on what is happening and normally I would just leave it at that, since the details of PBOC's monetary policy are as opaque to me as they are to most other people, but a few points caught my attention...

reuters.com/article/us-chi…

The fact that the shock seems to have been most severe in HK immediately raised an eyebrow, as there have been a few other recent events in HK I had been keeping an eye on...

The largest among these events is a block of about $20B in US Treasury securities that disappeared from HK in September/October and popped up again in Belgium according to the most recent Treasury International Capital report...

Now, some might say "Who cares about $20B of UST in Belgium?", and they would be right, except Belgium houses Euroclear Bank, an International Central Securities Depository which allows clients to inject securities into the broad European collateral pool:

euroclear.com/content/dam/eu…

The fact that these securities likely moved from HK to Belgium signals to me that certain HK banks needed this to post collateral for some unknown leveraged currency trades, which in the context of the recent moves in repo rates specifically in HK raises a few red flags for me...

Unfortunately most of these systems are very opaque, and we won't get the Treasury data for January until a few months from now, so what can we watch in the meantime besides the headlines and repo rates? Not sure, but personally I'm watching 2 things, suggestions welcome!