December 22, 2017 / 7:38 AM / 10 months ago

China's primary money rates mixed, market awaits fresh funds next week

    SHANGHAI, Dec 22 (Reuters) - China's short-term money rates
fell this week while a longer-term one rose, as the market for
the latter experienced liquidity stress that is expected to ease
by early next week with fund injections from the Finance
Ministry.
    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 2.7577
percent on Friday afternoon, around 16 basis points lower than
the previous week's closing average rate of 2.9185 percent. 
    But the 14-day repo rate rose through the week on rising
demand from financial institutions for funds through the
year-end. The rate for the 14-day tenor traded at
4.3579 percent, about 20 basis points higher than the closing
average rate a week earlier.
    Traders said the market sentiment was fine with overall
ample liquidity in the banking system, but funds for the banks
to get through the coming year-end and holidays were still in
need.
    Ming Ming, analyst at CITIC Securities, said he expects huge
amounts of state funds to be put into the banking system early
next week to ease the tight liquidity.
    "A total of around 1.7 trillion yuan ($258.81 billion) worth
of fiscal expenditure is ready to release in December to support
the liquidity and turn it back to neutral," he said in a note.
    In late December, traditionally, the Ministry of Finance 
increases its monthly distribution of deposits to firms and
individuals who benefit from government programs, lifting
banking system deposits. 
    In open market operations, the People's Bank of China this
week injected a net 200 billion yuan, up from 80 billion yuan a
week earlier.
    The government, following the annual Central Economic Work
Conference (CEWC), said on Wednesday that it would maintain
prudent, neutral monetary policy next year as it looks to
improve the quality of growth.
    Many China market watchers expect the monetary policy stance
could be tighter in 2018 amid a deleveraging campaign.
    "The CEWC suggests the deleveraging pressure will continue
unless growth slows down meaningfully," Larry Hu, analyst at
Macquarie Capital, said in research note.
    The wording about money supply has been tweaked to
"controlling the floodgate" from "adjusting" in last year's
statement, which implied a tightening bias, Tommy Xie, economist
at OCBC Bank in Singapore said in a note to clients.

    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.5692      2.6103      -4.11                      0.00
                                                                     
                                                                     
 Seven-day        2.7577      2.8214      -6.37                      0.00
                                                                     
                                                                     
 14-day           4.3718      4.5319      -16.01                     0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        3.4300      2.5900      +84.00                     472,241.4
                                                                     0
                                                                     
 Seven-day<CN7DR  6.0300      3.8950      +213.50                    43,034.80
 PO=SS>                                                              
 14-day           5.5950      5.9250      -33.00                     10,206.70
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.5800      2.6500      -7.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.9000      3.1500      -25.00                     
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           4.9000      5.0000      -10.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.6120      2.6650      -5.30                      
                                                                     
 Seven-day        2.8670      2.8710      -0.40                      
                                                                     
 Three-month      4.8908      4.8676      +2.32                      
                                                                     
 
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=        4.0200               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 = 6.5684 Chinese yuan)

    
 (Reporting by Winni Zhou and Brenda Goh)
  
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