March 21, 2017 / 6:13 AM / 2 years ago

China's money rates surge on concerns about PBOC risk checks

    SHANGHAI, March 21 (Reuters) - Short-term interest rates in
China surged on Tuesday as cash conditions tightened on worries
the central bank's quarterly risk assessment at the end of this
month would restrict lending in the interbank market.
    The benchmark seven-day repo rate traded in the interbank
market, considered a key indicator of general
liquidity in China, opened at 2.45 percent and jumped to a high
of 9.0 percent in morning trade, its highest since January 2014.
    By midday, the volume-weighted average rate was standing at
2.6939 percent, around 23 basis points lower than the previous
close but still near the near two-year high of 2.9298 percent
hit last Friday.
   Traders and analysts say liquidity tightness is driven by
worries the People's Bank of China's quarterly Macro Prudential
Assessment (MPA) at the end of this month could sway big banks
away from lending cash to smaller ones.
   "The last two weeks of March should be a period of intense
volatility with both the MPA and quarter-end cash demand,"
Guotai Junan Securities wrote in a note. 
    China's central bank is widely expected to tighten
supervision of its shadow banking businesses by including
off-balance sheet wealth management products (WMPs) into this
quarter's risk-assessment framework for the first time. 

    Now, market participants worry the impact from the MPA might
be larger than they had previously estimated.
    A trader at a Chinese bank in Shanghai said most market
participants are anxiously "seeking funds to square their
    The Shanghai Interbank Offered Rate (SHIBOR) for the
seven-day tenor rose to 2.7680 percent, the highest
since July 2015. Tuesday's rate was around two basis points
higher than the previous close.
    The overnight rate also stood at its highest level since
April 2015.
    In its daily open market operations on Tuesday, the PBOC
injected 80 billion yuan via reverse repurchase agreements,
compared with 50 billion yuan of maturing repos.
    Market participants said the daily net fund injection
through open market operations did little to soothe the jitters.
    The lack of significant liquidity injections is an
indication the PBOC has no intention on maintaining a relaxed
and stable interest rate environment, TF Securities said in a
    Some institutions withdrew funds to buy into a six-year 30
billion yuan ($4.35 billion) convertible bond issue from China
Everbright Bank last Friday, with Guosen Securities
saying that might have frozen around 400 to 500 billion yuan
from the market. 
    The return of short-term funds used to buy these bonds is
expected to flow back into the market as early as Wednesday,
which could help ease liquidity tightness.
    The spike in the interbank money rates follows the central
bank's moves to raise short-term interest rates last Thursday.
     Economists described the tightening last week as a bid to
stave off capital outflows and keep the yuan currency stable the
day after the Federal Reserve raised U.S. rates.
    The increase in rates was China's third in as many months
and came a day after the end of the annual session of
parliament, in which leaders flagged tackling the country's
rapid build-up in debt as a top policy priority for 2017.

    Key money rates at a glance:
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  rate (%)                                           
 Interbank repo market
 Overnight        2.5429      2.7013      -15.84                     0.00
 Seven-day        2.6939      2.9196      -22.57                     0.00
 14-day           4.0292      3.6272      +40.20                     0.00
 Shanghai stock exchange repo market
 Overnight        7.0250      5.1600      +186.50                    196,285.5
 Seven-day<CN7DR  5.4500      4.8000      +65.00                     20,110.10
 14-day           5.4100      5.2950      +11.50                     6,277.10
 PBOC Guidance Rates
 Overnight        2.6000      2.6100      -1.00                      
 Seven-day        5.5000      3.8500      +165.00                    
 14-day           4.8000      4.0000      +80.00                     
 Overnight        2.6477      2.6325      +1.52                      
 Seven-day        2.7680      2.7471      +2.09                      
 Three-month      4.3846      4.3711      +1.35                      
 Instrument            RIC         Rate          Spread vs 1 yr
                                                 official deposit
 2 yr IRS based on 1   CNABAD2YF=        0.0000                 0
 year benchmark                                  
 5 yr 7-day repo swap  CNYQB7R5Y=        4.0000               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:
 SHIBOR rates:
 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 = 6.9020 Chinese yuan)

 (Reporting by Winni Zhou and John Ruwitch; Editing by Sam
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