SHANGHAI Jan 28 China's major money rates were
mixed on Tuesday after the central bank injected fresh funds
into a market that remains under pressure from seasonal factors
and policy fears.
The weighted-average benchmark seven-day repo
was flat at 4.95 percent by mid-morning in light trade given the
weak supply of that tenor in the week immediately prior to the
long Lunar New Year holiday.
However, trade in 14-day repos, which will
not mature until well after markets reopen, was vigourous.
"The 14-day repo price is a real market price, while the
seven-day repo price is only really effective for the next two
days before markets close," said a dealer at a commercial bank
in Shanghai, saying that bankers were therefore largely
unwilling to lend using seven-day contracts.
The 14-day repo traded as high as 8 percent on Monday, the
highest intraday quote since a squeeze in late December, and the
weighted average for the tenor has been on a sharp rise since
mid-January, hitting an intra-month high of 6.93 percent on
Friday before sliding back to 6.72 percent on Tuesday.
Primary short-term repo rates showed signs of spiking the
previous week after the People's Bank of China (PBOC) abstained
from injecting any funds for seven consecutive sessions of open
market operations, leading bankers to hoard cash in order to
have sufficient reserves to last through the upcoming holiday
But the central bank moved to head off a more dramatic
squeeze by injecting 375 billion yuan ($62 billion) through a
mixture of repos that week, adding another 150 billion yuan to
the pot on Tuesday, more than offsetting the impact of a 75
billion yuan drain this week.
Market watchers remain on edge given the tendency of stock
and bond markets to react to rises in short-term rates in the
Some media circulated reports about banks freezing foreign
exchange transactions and the PBOC putting systems under
maintenance toward the end of the week for maintenance,
suggesting these indicated more systemic tightness, but which
money dealers pointed out happen every year during the holiday.
Dealers believe that the end of the holiday is likely to see
continued upward pressure on rates, part of the "new normal"
environment engineered by the central bank which intends to use
higher rates in the interbank market to pressure banks and
corporates to deleverage.
Money and bond markets are building in expectations of
pricier money, with one-year interest-rate swaps for the
seven-day repo at 4.81 percent and treasury bond
curves showing a steady rise since June, when the PBOC began its
crackdown on shadow banking.
However, data shows that traders are still betting that the
central bank will not adjust the benchmark deposit rate, still
held at 3 percent, which some economists argue would be the best
way to attack shadow banking as it would make traditional
deposits more attractive than higher-yielding wealth-management
The price of IRS based on the one-year deposit rate
stood at 2.98 percent, indicating no expectation
for an adjustment.
- China eases Jan credit squeeze with cash, surprising
- 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
- Fiscal deposits drive interbank liquidity trends GRAPHIC:
- 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 = 6.0480 Chinese yuan)
(Editing by Kim Coghill)