May 23, 2014 / 8:21 AM / 4 years ago

China money rates rise on tax but restrained by large injection

SHANGHAI, May 23 (Reuters) - China's money rates rose this
week under moderate pressure from upcoming tax payments, but a
large injection from the central bank during open market
operations -- and rumours of a large re-lending facility granted
to the China Development bank -- kept a lid on the rise.    
    The weighted average of the benchmark seven-day bond
repurchase agreement rate stood at 3.38 percent on
Friday, up 17 basis points from last week's close.
    The overnight repo rate rose a moderate 28
basis points to 2.53 percent, while the 14-day repo CN14DRP=CFXS
jumped 80 basis points to 3.89 percent.     
    "The money rate rose at the beginning of this week, but
after the central bank injected money via open market
operations, the money rates gradually fall back, which also
showed its intention of keeping money loose," said a dealer at
an Asian bank in Shanghai.
    The People's Bank of China injected a net 120 billion yuan
($19.25 billion) through ordinary open market operations this
week, its largest weekly injection since January.
    Sources told Reuters that it had also issued 300 billion
yuan in relending loans to the China Development Bank 
for use in refurbishing shantytown housing, which is considered
akin to a money base injection. 
    Economists and traders now agree that the central bank is
turning from a neutral policy to an easier one as slow economic
growth has continued into the second quarter.
    But how far it will go remains debated, with some calling
for a cut in reserve requirement ratios at banks as early as the
second quarter, while others expect the PBOC to continue to
prefer more targeted tools.
    The benchmark five-year interest rate swap 
stood at 3.98 percent by midday on Friday.
    
SHORT TERM RATES: 
 
 Instrument     RIC           Rate*   Change (weekly,
                                      bps)**
 1-day repo     CN1DRP=CFXS     2.53             17.15
 7-day repo     CN7DRP=CFXS     3.38             28.02
 14-day repo    CN14DRP=CFXS    3.89              79.7
 7-day SHIBOR   SHICNYSWD=      3.41              27.6
 * The volume-weighted average price (Vwap) at midday Friday
** Compared to the Vwap at market close the previous Friday
 
KEY INTEREST RATE SWAPS:
 
 Instrument            RIC         Rate     Spread (bps)
 2 yr IRS based on 1   CNABAD2YF=   2.9704                -3
 year benchmark *                           
 5 yr 7-day repo swap  CNYQB7R5Y=   3.9800               +98
 1 yr 7-day repo swap  CNYQB7R1Y=   3.6600               +66
 
*This spread can be seen as a proxy for forward-looking market
expectations of an interest rate cut or rise.                

GOVERNMENT BOND FUTURES
 Instrument            RIC         Price     Weekly change
 Jun 2014 5 yr         CTFM4          93.03             -7.09
 Sep 2014 5 yr         CTFU4          93.61              4.55
 Dec 2014 5 yr         CTFZ4          93.87             10.47
        >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
    
    MARKET DRIVERS
    - China to reform money market pricing to eliminate
manipulation-sources 
    - China's central bank opens liquidity front in hot money
war 
    - China's attack on yuan speculators risks backfiring
 
    - Market braces for bouts of tight liquidity in 2014
 
    - Beijing eases corporate debt rules to offset crackdown
 
    - China corporate financing squeezed as reform plans spark
rate spike 
    
    DATA POINTS
    - Chinese government bond curve rises moderately in April
from low base GRAPHIC: link.reuters.com/jyr95t
    - China's interest-rate swap tumbles in April on flush
liquidity GRAPHIC: link.reuters.com/ryr95t
    - China corp bond spreads widen on risk aversion GRAPHIC: link.reuters.com/bas95t
    - China hot money tracker: China hot money flows moderate in
early 2014 GRAPHIC: link.reuters.com/saz74t
    - China interbank liquidity tracker: Physical currency (MO)
drives liquidity swings in December and January GRAPHIC: link.reuters.com/nem75t
    
   >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>   
($1 = 6.2350 Chinese Yuan)

 (Editing by Kim Coghill)

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