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China money rates rise on quarter-end demand, IPO speculation
June 20, 2014 / 6:17 AM / 3 years ago

China money rates rise on quarter-end demand, IPO speculation

SHANGHAI, June 20 (Reuters) - China's money rates rose this
week on rising money demand from cyclical month-end factors and
investors trying to raise short-term funds to invest in initial
public offerings (IPOs).    
    Money rates in China typically gain toward the end of the
month, and in particular, at the end of the first half, when
banks and corporates stock up on cash to burnish their balance
    In 2013, this cash demand saw rates hit the stratosphere as
the central bank held back on liquidity, which economist saw as
a swipe at high-risk shadow banking, but this time around few
expect a recurrence of the cash crunch.  
    The weighted average of the seven-day bond repurchase
agreement stood at 3.45 percent in the early
afternoon on Friday, up 40 basis points from last week's close. 
    Another actively traded tenor, the 14-day repo
, spiked 136 basis points this week to trade at
4.60 percent on Friday. The overnight repo rate 
rose a moderate 16 basis points to 2.78 percent, largely because
that tenor does not allow clients to retain funds across the
    "The rise of money rates, particularly the spike in the
14-day repo rate this week, has been mainly caused by cyclical
demand for the 14-day repo. As expected, the end of the quarter
has raised money demand, thereby pumping up the price of those
benchmark instruments," said a trader from a city commercial
bank in Shanghai. 
    The growing cash demand for investment in IPOs is also
contributing to this trend, the trader said.
    Earlier this week, the Shanghai Stock Exchange saw intense
rises in the rates of short-term pledged bond repurchase
agreements as investors put up bonds as collateral to raise
short-term cash, signifying enduring speculative interest in new
listings even while wider indexes decline. 
    However, the rise in the pledged repo rates had no
discernable impact on the wider money market.
    This week, the People's Bank of China injected a net 15
billion yuan ($2.42 billion) into the interbank market during
open market operations, a relatively small injection compared
with the past several weeks. 
    Traders agree that starting from May, the PBOC has started
to drain money from the market gradually, but there is no need
for concern about capital liquidity. 
 Instrument         RIC                Rate*   Change
 1-day repo         CN1DRP=CFXS          2.78          16.75
 7-day repo         CN7DRP=CFXS          3.45          40.26
 14-day repo        CN14DRP=CFXS         4.60         136.64
 7-day SHIBOR       SHICNYSWD=           3.40           36.2
*The volume-weighted average price (vwap) at midday Friday
** Compared to the Vwap at market close the previous Friday
 Instrument              RIC           Rate    Spread(bps)
 2 yr IRS based on 1     CNABAD2YF=    2.9704             -3
 year benchmark *                              
 5 yr 7-day repo swap    CNYQB7R5Y=    3.8500             85
 1 yr 7-day repo swap    CNYQB7R1Y=    3.4400             44
*This spread can be seen as a proxy for forward-looking market
expectations of an interest rate cut or rise.                

 Instrument     RIC       Price(Yua  Change (weekly,
                          n)         bps)**
 Jun 2014 5yr   CTFM4         93.02            35.19
 Sep 2014 5yr   CTFU4         94.54             9.28
 Dec 2014 5yr   CTFZ4         94.93             5.62
    - China's money rates slip, offer no signs of monetary
policy change [ID: nL4N0OU0LH]
    - As cash crunch anniversary looms, traders guess at
policy direction 
    - China money dealers see stability, not easing going
    - 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
    - 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 
    - Fiscal deposits drive interbank liquidity trends GRAPHIC:
    - China hot money tracker: Hot money inflows slow to a
trickle in Dec 2013 GRAPHIC:
    - Maturing central bank bills and repos upcoming GRAPHIC:
    - Chinese government bond curve rises on rate reform
expectations GRAPHIC:
    - China's interest-rate swap curve rises, flattens on
liquidity fears GRAPHIC:
    - China corp bond spreads widen on risk aversion GRAPHIC:
($1 = 6.2090 Chinese Yuan Renminbi)

 (Reporting by the Shanghai Newsroom; Editing by Jacqueline

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