China money rates jump at month-end, big banks refrain from lending

Mon Jul 29, 2013 12:10am EDT

Related Topics

* Money rates rise as month-end approaches
    * Small volumes at high rates as big banks as sidelined
    * Markets watches if c.bank allows another cash crunch
    * Maturing instruments to inject 85 bln yuan this week

    SHANGHAI, July 29 (Reuters) - China's money rates rose
sharply on Monday as small banks scrambled to top up their cash
reserves before the end of the month while big banks held off
from lending, traders said.
    A dealer at a foreign bank in Shanghai said that conditions
were tight but the community widely expected them to relax
slowly over the course of the next few days. 
    "Part of the reason is month-end factors, part is because
the big banks aren't lending funds much, so the market is
presently quite nervous," he said.
    He added that although prices did appear high, transaction
volumes were relatively thin because the largest banks were
holding off from dealing.
    Chinese corporations and banks are stocking up on cash to
make dividend payments and massage mandated loan-to-deposit
ratios before the end of the month, putting cyclical upward
pressure on rates.
    The volume-weighted average price of the seven-day bond
repurchase agreement opened with an unusually
early quote of 5 percent at 9:22 a.m. local time (0122 GMT).
Traders said the rate was high but not particularly so given
month-end factors, and it was followed up by multiple quotes in
the same range. 
    The benchmark weighted-average seven-day bond repurchase
rate jumped to 5.08 percent by midday, up 66 basis
points from a previous close of 4.41 percent.
    The overnight rate rose to 3.75 percent from
3.60 percent, while the 14-day tenor advanced to
5.5159 percent from 4.8730 percent.
    Investors in adjacent markets are particularly sensitive to
Chinese short-term money rates after tightness in the interbank
market in June -- some tenors were priced as high as 30 percent
-- caused a cash crunch for banks and set off a slide in
mainland stock indexes. 
    China's interbank market frequently sees unusually high
quotations toward the end of the month, usually from smaller
banks or rural cooperatives short on cash.
    An unusually high 6 percent quote for an overnight repo
contract between two rural cooperatives on July 18
startled investors and resulted in both banks being disciplined
publicly by the central bank. 
    The central bank is set to allow 85 billion yuan ($13.86
billion) to enter the interbank market this week through
maturing bills. It has injected a net 33 billion yuan this year.
    
                                   (pct)               (bps)  
7-day repo         5.0780     4.4144    +66.36
7-day SHIBOR           5.0570     4.3510    +70.60
 Note: Repo rate is weighted average.    
    
    >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>  
    MARKET DRIVERS
    - CHINA MONEY-Tighter interbank regulation seen after cash
squeeze 
    - Collapse in China bond volumes exposes market's seamy side
 
    - China reform push means June turmoil may be just the
beginning 
    
    DATA POINTS
    - External liquidity tracker: Collapse in FX purchases 
hurts liquidity in May link.reuters.com/pem75t
    - Impact of maturing central bank bills and repos GRAPHIC: link.reuters.com/pem75t
    - Chinese government bond curve flattens on liquidity
squeeze, growth concerns GRAPHIC: link.reuters.com/jyr95t
    - China's interest-rate swap curve is inverted on severe
liquidity squeeze GRAPHIC: link.reuters.com/ryr95t
    - China corporate bond spreads have narrowed slightly 
GRAPHIC: link.reuters.com/bas95t
    - Hot money tracker: Hot money inflows have returned in
2013, boosting liquidity GRAPHIC: link.reuters.com/saz74t
    
    
   >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>   

 (Reporting by Pete Sweeney and Chen Yixin; Editing by
Jacqueline Wong)
FILED UNDER: