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China money rates lower as cash demand eases
December 1, 2017 / 7:11 AM / in 10 days

China money rates lower as cash demand eases

    SHANGHAI, Dec 1 (Reuters) - China's primary money rates fell on Friday as cash conditions
eased from the end-of-month squeeze seen last week, though analysts warn that tightness is
likely to resume as banks seek to ensure they have enough liquidity to meet end-of-year demand.
    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 2.8338
percent on Friday afternoon, down about 10.5 basis points from the previous week's closing
average rate of 2.9387 percent.
    It was also down about 11.3 basis points from Thursday's closing average rate of 2.9471
percent, which had reflected banks' high demand for cash at the end of the month to meet
regulatory requirements.
    "From yesterday afternoon, conditions began to be extremely loose," said a trader at a
regional bank. "Today trade is relatively weak."
    The seven-day Shanghai Interbank Offered Rate (SHIBOR) fell to 2.8510 percent, 2.2 basis
points lower than the previous week's close.
    The one-day or overnight rate stood at 2.5978 percent and the 14-day repo stood at 3.8744
percent.
    It was a shift from the previous week, when tight liquidity was among the factors triggering
a sell-off in bonds, pushing the yield on 10-year Chinese government bonds to
three-year highs. Market watchers had also expressed concern over the possible further
tightening effect of seasonal factors and 950 billion yuan ($143.65 billion) worth of maturing
reverse repos this week.
    Those concerns were allayed by the People's Bank of China (PBOC) rolling over most of the
maturing reverse repos, draining only a net 40 billion yuan via reverse repos in open market
operations.
    That relatively small drain compares with net injections of 960 billion yuan over the
previous two weeks as the PBOC attempted to soothe market nerves by ensuring ample liquidity.
    Some market watchers suggested that a positive turn in the bond markets at the end of the
week may have been helped by data showing weaker manufacturing growth in November.
    But Xu Hanfei, an analyst at China Merchants Securities, said in a note that any recovery is
likely to be temporary as bank demand for cash increases toward the end of the year, driving
rates up.
    The yield on 3-month AAA-rated NCDs, a short-term interbank loan, was at
4.98 percent on Wednesday and Thursday, its highest level since June.
     

 Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.5944      2.8031      -20.87                     0.00
                                                                     
                                                                     
 Seven-day        2.8180      2.9471      -12.91                     0.00
                                                                     
                                                                     
 14-day           3.8604      4.4367      -57.63                     0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        3.6550      3.7950      -14.00                     174,651.1
                                                                     0
                                                                     
 Seven-day<CN7DR  3.5500      3.8300      -28.00                     29,463.50
 PO=SS>                                                              
 14-day           3.7300      3.8600      -13.00                     6,376.60
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.6200      2.8000      -18.00                     
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.0000      3.4400      -44.00                     
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           3.8000      4.5000      -70.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.6420      2.7880      -14.60                     
                                                                     
 Seven-day        2.8510      2.8980      -4.70                      
                                                                     
 Three-month      4.7639      4.7594      +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=        3.9200               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:


($1 = 6.6131 Chinese yuan)

 (Reporting by Andrew Galbraith; Editing by Sam Holmes)
  

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