China money rates rise moderately, creating market confidence on liquidity

Fri Jun 27, 2014 12:02am EDT

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SHANGHAI, June 27 (Reuters) - China's money rates rose
moderately this week, thanks to the central bank's accommodative
liquidity stance, traders said, allaying fears that cyclical
money demand at end of the first half would produce a cash
crunch similar to one a year ago.     
    Money market conditions have remained much looser this year
than in the second part of last year. The People's Bank of China
(PBOC) has moved to maintain market confidence, injecting a net
62 billion yuan ($9.97 billion) into the money supply this week
via open market operations and deposit auctions.  
    In 2013, China's money market saw rates hit the stratosphere
as the central bank held back on liquidity, which economists saw
as a swipe at high-risk shadow banking. But this time around,
few expected a recurrence.  
    The weighted average of the seven-day bond repurchase
agreement stood at 3.78 percent at midday on
Friday, up 29 basis points from last week's close. The overnight
repo rate rose a milder 10 basis points to 2.88
percent.       
    Another actively traded tenor, the 14-day repo
, edged 63 basis points higher this week to trade
at 5.24 percent on Friday. 
    The 14-day repo has been on a steady but
relatively sharp rise in the past two weeks as companies have
tried to raise cash to pay dividends to shareholders for the
quarter-end. 
    Traders agreed that this cyclical factor has continued to
play a role in the structural mismatch of the money market this
week. 
    The PBOC skipped Thursday's open market operations, the
first time it has done so since mid-February, allowing a net 12
billion yuan to enter the market. 
    A trader from a state-owned commercial bank in Shanghai said
she believes that even though the PBOC drained a small amount of
funds through open market operations on Tuesday, the impact was
muted by injections from other instruments.
   "Overall, its intention is to keep injecting money to the
market," she said.
    On Thursday, the Ministry of Finance auctioned 50 billion
yuan three-month deposits at 3.80 percent, a steep drop from the
previous 6.13 percent, signalling that banks' cash demand has
been largely sated. 
   
SHORT TERM RATES: 
 Instrument         RIC                Rate*   Change
                                               (weekly,
                                               bps)**
 1-day repo         CN1DRP=CFXS          2.88          10.13
 7-day repo         CN7DRP=CFXS          3.78          28.51
 14-day repo        CN14DRP=CFXS         5.24          63.37
 7-day SHIBOR       SHICNYSWD=           3.55             15
 
*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=    3.9900             99
 1 yr 7-day repo swap    CNYQB7R1Y=    3.5400             54
 
*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       Price(Yua  Change (weekly,
                          n)         bps)**
 Jun 2014 5yr   CTFM4         93.02            35.19
 Sep 2014 5yr   CTFU4         94.51            -2.70
 Dec 2014 5yr   CTFZ4         94.91            -2.23
       
        >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
    
    MARKET DRIVERS
    - China money rates rise on quarter-end demand, IPO
speculation [ID: nL4N0P00Q9]
    - China's money rates slip, offer no signs of monetary
policy change [ID: nL4N0OU0LH]
    - As cash crunch anniversary looms, traders guess at c.bank
policy direction 
    - China money dealers see stability, not easing going
forward 
    - Muted impact of capital inflows a step towards
liberalising deposits 
    - Tax man's attack on shadow banking startles markets
 
    - China eases Jan credit squeeze with cash, surprising
transparency 
    - 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
    - Fiscal deposits drive interbank liquidity trends GRAPHIC:
link.reuters.com/pem75t
    - China hot money tracker: Hot money inflows slow to a
trickle in Dec 2013 GRAPHIC: link.reuters.com/saz74t
    - 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
  
    
   >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>   
($1 = 6.2214 Chinese Yuan Renminbi)

 (Reporting by the Shanghai Newsroom; Editing by Richard Borsuk)
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