Chinese money rates end week mixed after volatility on tax payments, IPOs

Fri Jul 18, 2014 4:01am EDT

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SHANGHAI, July 18 (Reuters) - Chinese money rates ended
mixed after a week of volatile liquidity conditions caused by
rising cash demand for corporate tax payments and investors
looking for short-term funds to put into a slew of initial
public offerings (IPOs), traders said.
    The weighted average of the seven-day bond repurchase
agreement stood at 3.71 percent late on Friday,
down 6 basis points from last week's close. The overnight repo
rate was at 3.30 percent, down 2 basis points. 
    But another actively traded maturity, the 14-day repo
, jumped 20 basis points this week to 4.46 percent
in late trade.
    Money market conditions were relatively loose until the
middle of the week, when the peak for Chinese companies to make
their first-half tax payments approached, traders said.
    On Tuesday, about a dozen Chinese companies also announced
they would launch IPOs this week, with subscriptions to be taken
next week.
    Chinese investors typically have strong interest in new
share issues and sought money for subscriptions, tightening
liquidity in the money market.
    According to local media estimates, these IPOs are likely to
take out 800 billion yuan ($129 billion) next week.
    "Money rates slipped slightly on Tuesday and Wednesday, but
the liquidity situation has became tight since Thursday," said a
trader at a Chinese commercial bank in Shanghai.
    Traders said the rise in the 14-day repo rate that reflected
the impact of tax payments and IPOs would probably last for the
next couple of weeks.
    
    STRONG CREDIT DATA
    Data released this week showed Chinese banks lent 1.08
trillion yuan ($174 billion) in June, nearly 20 percent more
than market expectations. Broad M2 money supply jumped 14.7
percent last month from a year earlier, the biggest increase in
10 months. 
    The strong credit data reflected the impact of the central
bank's targeted monetary easing in the second quarter in
response to the government's call to support growth in the
world's second-largest economy.
    However, the strength of June's credit data appears to have
alarmed the People's Bank of China (PBOC), which reduced the
amount of its cash injection into the money market this week.
    The PBOC injected a net 17 billion yuan in its open market
operations, down from 50 billion last week. 
    "The PBOC's new stance may mean that liquidity conditions in
the money markets this year would have been at their loosest in
the second quarter," the trader said. 
 
  SHORT TERM RATES: 
 Instrument         RIC               Rate*   Change (weekly,
                                              bps)**
 1-day repo                             3.30            -2.32
 7-day repo                             3.71            -6.04
 14-day repo                            4.46            20.15
 7-day SHIBOR                           3.65             -7.2
 
*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                  2.9704            -3
 year benchmark *                             
 5 yr 7-day repo swap                 4.4417           144
 1 yr 7-day repo swap                 4.0200           102
 
*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
                                    (pct)
 Sep 2014 5 yr               93.02               0.05
 Dec 2014 5 yr               93.34               0.08
 Mar 2014 5 yr               93.74              -0.83
 
        >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
    
    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
liberalizing 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
and Alan Raybould)
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