China money rates rise slightly for week on reserve payments

Fri Jul 11, 2014 1:47am EDT

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SHANGHAI, July 11 (Reuters) - Chinese money rates rose this
week on cash demand from banks needing to make reserve deposits,
pushing the overnight repo rate to its highest
since February in the middle of the week before falling back.
    The weighted average of the seven-day bond repurchase
agreement stood at 3.74 percent at midday on
Friday, up 31.8 basis points from last week's close. The
overnight repo rate closed near a five-month high,
rising 36.29 basis points to 3.31 percent. 
    Another actively traded tenor, the 14-day repo
, rose 73.27 basis points this week to trade at
4.23 percent on Friday. 
    "The market has been tight this week because banks needed to
pay the reserve deposit on Monday," a trader from a Chinese
commercial bank in Shanghai said. 
    In addition, China's liquidity was also affected by foreign
exchange data, which showed foreign exchange assets rose a mere
361 million yuan ($58.16 million) in May, down sharply from the
84.6 billion yuan rise seen in April and the lowest growth in 11
months. The slowdown implies a decrease in the circulation of
yuan in China and thus a decrease in market liquidity. 
    "The figure for the PBOC's foreign exchange assets is below
expectations, so the central bank needed to conduct open market
operations to inject money to maintain market stability." the
trader said. 
    He said this did not necessarily mean that the monetary
policy stance has turned toward loosening, despite the central
bank making net injections into the money supply via open market
operations for nine consecutive weeks, almost completely
reversing the drains enacted previously in the year.
    
SHORT TERM RATES: 
 Instrument         RIC               Rate*   Change (weekly,
                                              bps)**
 1-day repo         CN1DRP=CFXS         3.31            36.29
 7-day repo         CN7DRP=CFXS         3.74            31.84
 14-day repo        CN14DRP=CFXS        4.23            73.27
 7-day SHIBOR       SHICNYSWD=          3.72             30.3
 
*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=    2.9487            -5
 year benchmark *                             
 5 yr 7-day repo swap   CNYQB7R5Y=    4.1600           116
 1 yr 7-day repo swap   CNYQB7R1Y=    3.7250            73
 
*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   Weekly
                                   change (bps)
 Sep 2014 5 yr     CTFU4    93.70        -25.26
 Dec 2014 5 yr     CTFZ4    94.11        -27.37
 Mar 2014 5 yr     CTFH5    94.38         -6.31
 
      
        >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
    
    MARKET DRIVERS
    - China money rates fall, markets return to normal after
deadline passes 
    - China money rates rise moderately, creating market
confidence on liquidity 
    - 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 = 6.2074 Chinese Yuan Renminbi)

 (Reporting by the Shanghai Newsroom; Editing by Jacqueline
Wong)
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