July 28, 2017 / 6:22 AM / 3 years ago

China's money rates rise on month-end seasonal factors

    SHANGHAI, July 28 (Reuters) - China's primary money market
rates were up slightly for the week driven by seasonal factors,
despite the central bank's net injection of funds.  
    The volume-weighted average rate of the benchmark seven-day
repo traded in the interbank market, considered
the best indicator of general liquidity in China, was 2.7855
percent on Friday, around 2 basis points higher than the
previous week's closing average rate at 2.7683 percent. 
    Cash conditions had a slightly tightening bias for the week
caused by month-end demand from banks for funds to meet
regulatory requirements, a trader at a Chinese bank in Shanghai
said, noting the central bank was keen to keep the overall
liquidity "not too loose, not too tight". 
     For the week, the People's Bank of China (PBOC) injected a
net 280 billion yuan ($41.50 billion) into the market via its
reverse bond repurchase agreements, down from a net injection of
510 billion yuan a week earlier.
    The weekly net cash injection was lower because 138.5
billion yuan worth of medium-term lending facility (MLF) loans
matured on Monday, draining cash out of the market.
    The PBOC injected 360 billion yuan of MLF loans earlier this
month to offset a total of 357.5 billion yuan MLF loans that
matured this month.
    Some traders said they were not particularly optimistic for 
cash conditions in early August because large numbers of reverse
repos were due to mature. 
    Maturing PBOC reverse bond repurchase agreements will drain
750 billion yuan next week, according to Reuters calculations
based on official data.
    Some market watchers said the PBOC has managed banking
system liquidity in July by "cutting the peaks to fill in the
valleys". 
    They noted that the authorities injected funds to ensure
liquidity when some temporary and seasonal factors weighed on
the market, but kept overall conditions steady because 
stability and deleveraging in the financial markets were top
priorities this year.
    Larry Hu, head of China economics at Macquarie Securities in
Hong Kong, expected liquidity conditions to improve in the
second half of this year.
    While economic growth was likely to slow, a mix of
"deteriorating fundamentals with improved liquidity would
benefit onshore China, including 'A' shares and bonds".
    The Shanghai Interbank Offered Rate (SHIBOR) for the
seven-day tenor rose to 2.8770 percent on Friday, 3 basis points
higher than the last Friday's fix.
    The spread of the five-year credit default swap rate on
Chinese sovereign debt fell 3.09 percent to 63.59
on Friday.    

    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.8384      2.8313      +0.71                      0.00
                                                                     
                                                                     
 Seven-day        2.7855      2.9341      -14.86                     0.00
                                                                     
                                                                     
 14-day           4.0874      4.0209      +6.65                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        4.2100      4.0600      +15.00                     156,602.3
                                                                     0
                                                                     
 Seven-day<CN7DR  4.0600      4.0650      -0.50                      32,786.60
 PO=SS>                                                              
 14-day           3.9000      4.0000      -10.00                     2,638.30
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.8600      2.8100      +5.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.4400      3.4400      +0.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           4.1000      4.0500      +5.00                      
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.8152      2.7860      +2.92                      
                                                                     
 Seven-day        2.8770      2.8626      +1.44                      
                                                                     
 Three-month      4.2514      4.2500      +0.14                      
                                                                     
 
KEY INTEREST RATE SWAPS:
 Instrument            RIC         Rate          Spread vs 1 yr
                                                 official deposit
                                                 rate*
 2 yr IRS based on 1   CNABAD2YF=        0.0000              -1.5
 year benchmark                                  
 5 yr 7-day repo swap  CNYQB7R5Y=        3.6700               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:

($1 = 6.7477 Chinese yuan)

    
 (Reporting by Winni Zhou and John Ruwitch)
  
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