April 21, 2017 / 4:35 AM / 8 months ago

China money rates rise as Beijing steps up shadow bank crackdown, cbank injects cash to avoid crunch

    SHANGHAI, April 21 (Reuters) - Chinese money market rates and bond yields rose this week as
the government stepped up its crackdown on the shadow banking and riskier financing practices,
but fresh cash injections by the central bank helped avert any severe cash shortgages.
    Analysts say the injection of 665.5 billion yuan ($96.76 billion) into the banking system by
the People's Bank of China (PBOC) this week was mainly aimed at preventing a repeat of the 2013
liquidity crisis, when its inaction in money markets fueled a cash crunch that saw short-term
rates spike, alarming global markets.
    But traders are convinced that authorities are sticking to a gradual policy tightening path
as they try to wring more leverage out of the system to reduce risks from years of debt-fueled
    China's benchmark seven-day repo traded in the interbank market, considered
the best indicator of general liquidity, closed at 2.9074 on Thursday, up from last week's close
of 2.6729. The repo rates fell on Friday morning. 
    China's 10-year treasury yields have climbed to around 3.45 percent from last
week's close of 3.359 percent.
    The rise in market rates follows signs that China is stepping up its crusade against shadow
    China's banking regulator has issued a flurry of directives on risk management almost daily
since getting a new boss, Guo Shuqing, in February.
    Last week, the China Banking Regulatory Commission (CBRC) ordered lenders to conduct
"self-inspections", targeting lenders' risky investments using regulatory loopholes.            
    It also has asked lenders to look into the guarantee chains of its borrowers, according to a
document seen by Reuters, the latest in a slew of policy initiatives to reduce the risk of
defaults snowballing through the financial system.
    Industrial Securities attributed the debt market weakness to "financial institutions'
behavioral adjustments to high-pressure regulations," rather than economic fundamentals.
    Financial magazine Caixin reported on Thursday that lenders including ICBC,
China Construction Bank and Citi Bank have started reducing their bond
holdings in a bid to meet regulatory requirements on investments and liquidity.
    In an apparent effort to assuage market fears,  China's central bank resumed open market
operations last Thursday after a 13-session hiatus.
    This week, PBOC has injected 170 billion yuan via reverse bond repurchase agreements
(reverse repos) and 495.5 billion yuan via medium-term lending facility (MLF).        
    "It doesn't represent a loosening of monetary policies," said Zheng Lianghai, analyst at
Donghai Securities.
    "PBOC just wanted to ease market sentiment. It has learnt lessons from the past," he said,
referring to the crisis in 2013.

 Key money rates at a glance:
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  rate (%)                                           
 Interbank repo market
 Overnight        2.6088      2.6514      -4.26                      0.00
 Seven-day        2.6379      2.9074      -26.95                     0.00
 14-day           2.8958      3.2882      -39.24                     0.00
 Shanghai stock exchange repo market
 Overnight        2.9550      2.7350      +22.00                     181,380.3
 Seven-day<CN7DR  3.2800      2.9700      +31.00                     41,431.40
 14-day           3.3950      3.3250      +7.00                      6,302.80
 PBOC Guidance Rates
 Overnight        2.6500      2.6000      +5.00                      
 Seven-day        3.4400      3.6000      -16.00                     
 14-day           4.2000      3.6600      +54.00                     
 Overnight        2.6163      2.5987      +1.76                      
 Seven-day        2.7600      2.7580      +0.20                      
 Three-month      4.2781      4.2725      +0.56                      
 Instrument            RIC         Rate          Spread vs 1 yr
                                                 official deposit
 2 yr IRS based on 1   CNABAD2YF=        0.0000              -1.5
 year benchmark                                  
 5 yr 7-day repo swap  CNYQB7R5Y=        3.9200               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 bonds:
 Overview of China financial market data:

 (Reporting by Samuel Shen and John Ruwitch; Editing by Kim Coghill)

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