December 8, 2017 / 9:13 AM / 8 days ago

China money rates end week lower, but financial risk rules dent sentiment

    SHANGHAI, Dec 8 (Reuters) - China's primary money rates
eased slightly this week despite the largest weekly net cash
drain since early February, but overall cash conditions remained
tight as investors pondered the effect of new regulations to
reduce financial risk.
     The outcome of the Federal Reserve's final meeting of the
year next week will also be keenly followed for clues on the
outlook for U.S. monetary policy in 2018 and what that might
mean for China.
     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 2.8259
percent on Friday afternoon, up 2.1 basis points from the
previous day's closing average rate. It was, however, down 1.2
basis points from the previous week's closing average rate of
2.8383 percent. 
    The seven-day Shanghai Interbank Offered Rate (SHIBOR) fell
to 2.7990 percent, 5.2 basis points below the previous week's
close.
    Yields ticked up toward the end of the week amid concern
over the impact of the central bank's recently issued guidelines
to combat risks in the asset management sector.
    "Liquidity has been acceptable this week... (but) market
worries are still very serious," said a trader at a regional
bank. 
    In a closed-door meeting last week, 10 Chinese banks raised
strong objections over the guidelines, including some that would
force banks to sell bonds, stocks and other liquid assets at a
discount, highlighting the potential for triggering systemic
risks.
     A paper run by the People's Bank of China (PBOC), which
reported the central bank is expected to use its medium-term
lending facility (MLF) twice in December, stoked speculation
that China may follow a Fed Funds rise with an increase in its
medium-term target rate. 
    The Fed is widely expected to raise rates at next week's
policy meeting.
    The PBOC injected 188 billion yuan into the financial system
via one-year MLF loans on Wednesday. The central bank drained a
net 510 billion yuan from money markets this week via open
market operations, the largest drain since early February.

    In another sign of tight liquidity, yields on negotiable
certificates of deposit (NCD), a popular form of short-term debt
used by banks, ended the week near recent highs. Three-month
AAA-rated NCDs yielded 4.97 percent on Thursday
[yes, Thursday], up 40 basis points since the beginning of
November.
    Data from the website of the China Foreign Exchange Trade
System showed more than 2.2 trillion yuan worth of NCDs maturing
in December, approximately 6 percent of the total value of all
NCDs ever issued.
    The one-day or overnight repo rate stood at 2.5879 percent
on Friday and the 14-day repo stood at 3.7750 percent.

 Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.5879      2.5682      +1.97                      0.00
                                                                     
                                                                     
 Seven-day        2.8259      2.8051      +2.08                      0.00
                                                                     
                                                                     
 14-day           3.7750      3.7023      +7.27                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        2.8000      3.0300      -23.00                     757,263.5
                                                                     0
                                                                     
 Seven-day<CN7DR  3.6050      3.4750      +13.00                     57,150.00
 PO=SS>                                                              
 14-day           4.0000      3.7700      +23.00                     14,408.40
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.6000      2.5900      +1.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.0000      3.0000      +0.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           3.8000      3.8100      -1.00                      
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.6080      2.5850      +2.30                      
                                                                     
 Seven-day        2.7990      2.7910      +0.80                      
                                                                     
 Three-month      4.7918      4.7873      +0.45                      
                                                                     
 
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=        3.9900               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 Andrew Galbraith; Editing by Shri Navaratnam)
  

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