China money rates rise ahead of holiday

Wed Apr 30, 2014 2:14am EDT

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By Pete Sweeney
    SHANGHAI, April 30 (Reuters) - China's benchmark money rates
rose this week in the run-up to a holiday week that will see
markets closed Thursday and Friday, but dealers said conditions
remain relaxed and they expect rates to fall again when trading
resumes on Monday.
    The weighted average of the benchmark seven-day bond
repurchase agreement stood at 4.10 percent in mid
afternoon trade, up 58 basis points from last Friday's close and
out of the 3 percent territory dealers consider accomodative.
    But a dealer at a city commercial bank in Shanghai said that
long-term money rates were still easy, and said the rise in
short term rates was likely due to short-term demand for cash to
span the four-day market close.
    The overnight repo rate stood at 2.5 percent,
up over 16 basis points from last week, but the 14-day repo
 was at 4.13 percent, down 26 basis points,
supporting the dealer's argument that the stress was short-term.
    The People's Bank of China allowed funds to flow into the
market on Tuesday, conducting a net injection of 91 billion yuan
($14.54 billion).
    On Tuesday it published its annual Financial Stability
Report in which it released the results of a stress test applied
to 17 systemically important banks. The bank said the results of
the tests showed that China's financial system could handle a
400 percent increase in non-performing loans without much damage
to capital adequacy ratios.    
    
SHORT TERM RATES: 
 Instrument      RIC             Rate*    Change (weekly,
                                          bps)**
 1-day repo      CN1DRP=CFXS        2.50            16.48
 7-day repo      CN7DRP=CFXS        4.10            58.73
 14-day repo     CN14DRP=CFXS       4.15           -26.53
 7-day SHIBOR    SHICNYSWD=         4.13             63.1
 
*The volume-weighted average price (Vwap) at midday Friday
** Compared to the Vwap at market close the previous Friday
 
KEY INTEREST RATE SWAPS:
 Instrument               RIC          Rate    Spread (bps)
 2 yr IRS based on 1      CNABAD2YF=   2.9704               -3
 year benchmark *                              
 5 yr 7-day repo swap     CNYQB7R5Y=   4.1100              111
 1 yr 7-day repo swap     CNYQB7R1Y=   3.7900               79
 
*This spread can be seen as a proxy for forward-looking market
expectations of an interest rate cut or rise.                

GOVERNMENT BOND FUTURES
 Instrument        RIC      Rate     Change (weekly,
                                     bps)
 Jun 2014 5 yr     CTFM4      92.60             2.37
 Sep 2014 5 yr     CTFU4      92.96            -3.30
       
        >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
    
    MARKET DRIVERS
    - China to reform money market pricing to eliminate
manipulation-sources 
    - China's central bank opens liquidity front in hot money
war 
    - China's attack on yuan speculators risks backfiring
 
    - Market braces for bouts of tight liquidity in 2014
 
    - Beijing eases corporate debt rules to offset crackdown
 
    - China corporate financing squeezed as reform plans spark
rate spike 
    
    DATA POINTS
    - Maturing central bank bills and repos upcoming GRAPHIC: r.reuters.com/vyr95t
    - Chinese government bond curve rises on rate reform
expectations GRAPHIC: link.reuters.com/jyr95t
    - China's interest-rate swap curve rises, flattens on
liquidity fears GRAPHIC: link.reuters.com/ryr95t
    - China corp bond spreads widen on risk aversion GRAPHIC: link.reuters.com/bas95t
    - China hot money tracker: Large hot money inflows to China
in late 2013 GRAPHIC: link.reuters.com/saz74t    
   >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>   
($1 = 6.2580 Chinese Yuan)

 (Additional reporting by Chen Yixin; Editing by Kim Coghill)
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