August 25, 2017 / 7:40 AM / in 10 months

China's money rates extend climb this week as siphons liquidity

    SHANGHAI, Aug 25 (Reuters) - China's key money rates spiked
for the week as the central bank conducted its biggest drain in
nearly two months, tightening liquidity as it extends its
campaign against riskier types of financing.  
    While conditions eased slightly on Friday, analysts said
tighter cash conditions had forced the non-bank financial
institutions to deleverage as those lenders usually use
short-term funds to meet their leveraged investment needs.
    The volume-weighted average rate of the benchmark 14-day
repo traded in the interbank market, considered
one of the best indicators of general liquidity in China, surged
to its highest in five months on Wednesday.
    The 14-day repo eased on Friday, trading at 4.1625 percent
by 0636 GMT.
    The 7-day repo rate also rose for the week and stood at
2.9344 percent on Friday afternoon, more than 6 basis points
higher than the previous week's close.
    In open market operations, the People's Bank of China (PBOC)
refrained from injecting net funds into the money market for the
entire week, draining a net 330 billion yuan ($49.52 billion) in
five days - matching the amount drained in the last week of
    The PBOC said in a statement that liquidity in the banking
system was "appropriate" following factors including liquidity
injection from "fiscal expenditure, deposit auctions and refund
of financial institutions' reserve payment" to counter maturing
reverse repos.
    A trader at a Chinese bank said cash conditions were "very
tight" in the middle of the week but improved on Friday,
expecting the situation to remain tight for the remainder of the
    A large number of Negotiable Certificates of Deposit - a
popular bond instrument used by smaller lenders - will mature
this month and next while commercial banks' excess cash reserves
remain low. 
    Several traders said the market will focus on open market
operations next week as the finance ministry is due to roll over
600 billion yuan worth of special treasury bonds due on Aug. 29,
when the PBOC may inject additional funds.
 Key money rates at a glance:
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  rate (%)                                           
 Interbank repo market
 Overnight        2.8655      2.8590      +0.65                      0.00
 Seven-day        2.9344      2.9245      +0.99                      0.00
 14-day           4.1625      4.3536      -19.11                     0.00
 Shanghai stock exchange repo market
 Overnight        4.2550      3.9850      +27.00                     595,399.1
 Seven-day<CN7DR  4.5000      4.3950      +10.50                     80,561.20
 14-day           4.3000      4.2850      +1.50                      5,501.70
 PBOC Guidance Rates
 Overnight        2.8800      2.8500      +3.00                      
 Seven-day        3.4400      3.4400      +0.00                      
 14-day           4.2100      4.5000      -29.00                     
 Overnight        2.8550      2.8479      +0.71                      
 Seven-day        2.9098      2.9040      +0.58                      
 Three-month      4.3689      4.3619      +0.70                      
 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=        3.7600               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 = 6.6636 Chinese yuan)

 (Reporting by Winni Zhou and John Ruwitch; Editing by
Jacqueline Wong)
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