SHANGHAI, Dec 2 China's primary money rates were
up sharply for the week on tight liquidity after days of net
fund drains by the central bank although pressure eased on
Friday, traders said.
The People's Bank of China (PBOC) is controlling liquidity
to curb potential risks and an expansionary monetary policy is
unlikely to return in the near future, industry sources say.
Money conditions were "extremely tight" in the middle of the
week, triggering a sell-off in the bond market, but supply and
demand were more balanced and conditions slightly looser on
Friday, traders said.
Chinese 10-year treasury futures for March delivery
fell by the most in more than a year on Tuesday, and as of
Friday afternoon the price was down 1.34 percent from last
week's closing price.
The 10-year treasury yield rose 16 basis
points to 3.05 percent from the previous week's close.
"Money conditions were largely tight in November, and a
series of daily net drains through open market operations and
seasonal factors piled on a lot of pressure in the middle of the
week," the trader said.
The central bank injected a net 70 billion yuan ($10.17
billion) into the market through open market operations this
week, compared with a net injection of 40 billion yuan a week
earlier. However, the central bank drained funds for four
straight days before a daily net injection on Thursday.
Adding to tight conditions, banks usually shore up their
cash positions to meet regulatory requirements at the end of the
"But the central bank might not have thought the market was
in need of urgent funds, and didn't roll out money through
medium-term lending facilities as it used to do," the trader
Traders said the market was in consensus that the central
bank would likely pump fresh funds into the system through
medium-term lending facilities, or MLFs, when existing loans
Some analysts were concerned that further yuan weakness
would continue to drain base money out of the market.
Separately, yuan borrowing costs in Shanghai surged to a
two-month high on tight liquidity.
The overnight Shanghai Interbank Offered Rate (SHIBOR)
hit 2.3250 percent on Thursday, the highest since
Sept. 30, when the rate surged to a 17-month high of 2.3270
percent. The rate fell back slightly to 2.3200 percent on
Friday, snapping 16 straight days of gains.
The volume-weighted average rate of the benchmark seven-day
repo traded in the interbank market, considered
the best indicator of general liquidity in China, was 2.6560
percent, nearly 10 basis points higher compared with last week's
closing average rate.
Key money rates at a glance:
Volume-wei Previous Change (bps) Volume
ghted day (%)
Interbank repo market
Overnight 2.2943 2.3172 -2.29
Seven-day 2.4546 2.6560 -20.14
14-day 3.0257 3.3714 -34.57
Shanghai stock exchange repo market
Overnight 3.0000 10.2950 -729.50 930,204.2
Seven-day<CN7DR 2.9600 3.5200 -56.00 60,958.40
14-day 3.0350 3.0750 -4.00 6,376.90
PBOC Guidance Rates
Overnight 2.3000 2.3000 +0.00
Seven-day 2.7000 3.2000 -50.00
14-day 3.2000 3.5900 -39.00
SHANGHAI INTERBANK OFFERED RATE
Overnight 2.3200 2.3250 -0.50
Seven-day 2.5010 2.5020 -0.10
Three-month 3.0686 3.0556 +1.30
KEY INTEREST RATE SWAPS:
Instrument RIC Rate Spread vs 1 yr
2 yr IRS based on 1 CNABAD2YF= 0.0000 -1.5
5 yr 7-day repo swap CNYQB7R5Y= 3.5000 n/a
*This spread can be seen as a proxy for forward-looking market
expectations of an interest rate cut or rise
China FX and money market guide:
China debt market guide:
Reports on central bank open market operations:
New Chinese debt issues:
Prices for central bank bills, treasury bonds and sovereign
Overview of China financial market data:
($1 = 6.8839 Chinese yuan renminbi)
(Reporting by Winni Zhou and John Ruwitch; Editing by