* 7-day repo rate gains 31 bps after Tuesday’s 100-bp plunge
* Rare rollercoaster trade reflects jitters over cash safety
* Money rates factor in next bank reserve rise or rate hike
* Market takes lead to tighten ahead of central bank
* Bond market awaits Nov data; 5-year bond yield drops 8 bps
By Lu Jianxin and Jacqueline Wong
SHANGHAI, Dec 8 (Reuters) - China’s benchmark short-term money market rate rebounded 31 basis points on Wednesday from a 100-bp plunge a day earlier as cautious institutions either hoarded cash or borrowed in anticipation of tight money ahead of possible government monetary tightening steps.
Before Tuesday’s dive, the seven-day repo rate jumped around 150 bps as the market took the lead in tightening monetary conditions after the People’s Bank of China surprised the market with an official interest rate hike on Oct. 19, and subsequently, with a slew of rises in banks’ required reserve ratios (RRR).
Rollercoaster trading in the repo rate -- the key barometer of liquidity -- has rarely reached such levels except during extraordinary strong cash calls from mega share initial public offerings. This occured during the world-record beating IPO by Agricultural Bank of China (601288.SS)(1288.HK) in June.
Traders said the unprecedented rises and falls driven by policy outlook indicates that the tightly-controlled market was becoming more aware of its influence and even starting to tighten monetary conditions before the PBOC acts.
“The market is evolving and it will get used to volatility,” said a trader at a major Chinese state-owned bank. “This time, banks and other institutions all began getting more aware of risks and preparing for rainy days ahead of the PBOC moves.”
Traders said the current market money rates have factored in one RRR rise or a second official rate hike within this year.
“The market is fully prepared (for a possible tightening). This has been rare case,” said a trader at an Asian bank.
For an analysis of China’s money market [ID:nTOE6B101E]
In an across-the-board rally, the weighted average seven-day government bond repurchase rate CN7DRP=CFXS jumped to 2.5069 percent at middy on Wednesday from Tuesday’s close of 2.1975 percent.
The shortest one-day bond repo rate CN1DRP=CFXS rose 10.69 bps to 2.1020 percent by midday and longest traded 91-day rate CN3MDRP=CFXS added 9.72 bps to 4.1000 percent.
On the government bond market, the benchmark five-year bond yield CN5YT=RR dropped 8 bps to 3.50 percent from 3.58 percent a day earlier, implying around three 25-basis-point rate increases over the next six months to one year, also leading the PBOC’s possible tightening steps, traders said.
The yield began pulling back gradually since it reached as high as 3.82 percent a week ago, its highest since September 2009, as many investors saw the level implying too many interest rate rises in the coming six months or year.
But it appeared to have no momentum to fall further ahead of November economic data due this Saturday, including the consumer price inflation figure, which may offer some hints to the government’s next monetary move. [ID:nTOE6B7010]
Current Prs close Change
(Bid, pct) (bps) 7-day repo CN7DRP=CFXS 2.5069 2.1975 +30.94 7-day SHIBOR SHICNYSWD= 2.5029 2.2078 +29.51 90-day CB bill CN3MTB=RR 1.9300 1.9300 0.00 1-year CB bill CN1YTB=RR 2.5800 2.5800 0.00 5-year Tsy CN5YT=RR 3.5000 3.5800 - 8.00 15-year Tsy CN15YT=RR 4.2200 4.0500 +17.00
Note: Repo rate is weighted average.
To see SHIBOR rates, please click SHIBOR
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sovereign bonds, please click <CN/CONT203>, <CN/HIGHLIGHT>
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news and analysis, please click <CN/CONT1>
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