July 4, 2014 / 6:31 AM / 3 years ago

China money rates fall, markets return to normal after deadline passes

SHANGHAI, July 4 (Reuters) - Chinese money rates traded
slightly lower this week, making a smooth transition through the
end of the first-half reporting period, which saw rates rise as
companies stocked up on cash to meet regulatory rules and report
to shareholders. 
    The weighted average of the seven-day bond repurchase
agreement stood at 3.42 percent at midday on
Friday, down 43 basis points from last week's close. The
overnight repo rate rose a milder 6 basis points
to 2.95 percent. 
    Another actively traded tenor, the 14-day repo
, fell 192 basis points this week to trade at 3.50
percent on Friday. 
    "The money market has gone through the quarter-end smoothly.
No liquidity squeeze has been spotted this week," a trader from
a state-owned commercial bank in Beijing said.
    A trader from a state-owned commercial bank in Shanghai said
she believes that even though commercial banks still need to pay
in deposit reserves next week, the impact has not been reflected
on price so far. 
    However, a trader from a city commercial bank in Shanghai
said more volatility could be expected early next week because
of cash demand from banks needing to make reserve deposits.
    Money market conditions have remained much looser this year
than in the second part of last year. The People's Bank of China
(PBOC) has moved to maintain market confidence, injecting a net
55 billion yuan ($8.86 billion) into the money supply this week
via open market operations.  
    In 2013, China's money market saw rates hit the stratosphere
as the central bank held back on liquidity, which economists saw
as a swipe at high-risk shadow banking. But this time around,
few expected a recurrence. 
    
SHORT TERM RATES: 
 Instrument         RIC                Rate*   Change
                                               (weekly,
                                               bps)**
 1-day repo         CN1DRP=CFXS          2.95           6.13
 7-day repo         CN7DRP=CFXS          3.42         -43.24
 14-day repo        CN14DRP=CFXS         3.50        -192.59
 7-day SHIBOR       SHICNYSWD=           3.42          -36.1
 
*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=    4.2584            126
 1 yr 7-day repo swap    CNYQB7R1Y=    3.7584             76
 
*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 (bps)
 Sep 2014 5 yr     CTFU4       94.04        -47.24
 Dec 2014 5 yr     CTFZ4       94.47        -43.96
 Mar 2014 5 yr     CTFH5       94.51        -48.42
 
       
        >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
    
    MARKET DRIVERS
    - China money rates rise moderately, creating market
confidence on liquidity 
    - China money rates rise on quarter-end demand, IPO
speculation [ID: nL4N0P00Q9]
    - China's money rates slip, offer no signs of monetary
policy change [ID: nL4N0OU0LH]
    - As cash crunch anniversary looms, traders guess at c.bank
policy direction 
    - China money dealers see stability, not easing going
forward 
    - Muted impact of capital inflows a step towards
liberalising deposits 
    - Tax man's attack on shadow banking startles markets
 
    - China eases Jan credit squeeze with cash, surprising
transparency 
    - 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
    - Fiscal deposits drive interbank liquidity trends GRAPHIC:
link.reuters.com/pem75t
    - China hot money tracker: Hot money inflows slow to a
trickle in Dec 2013 GRAPHIC: link.reuters.com/saz74t
    - Maturing central bank bills and repos upcoming GRAPHIC: r.reuters.com/vyr95t
    - Chinese government bond curve rises on rate reform
expectations GRAPHIC: link.reuters.com/jyr95t
    - China's interest-rate swap curve rises, flattens on
liquidity fears GRAPHIC: link.reuters.com/ryr95t
    - China corp bond spreads widen on risk aversion GRAPHIC: link.reuters.com/bas95t
  
    
   >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>   
($1 = 6.2066 Chinese yuan)

 (Reporting by the Shanghai Newsroom; Editing by Jacqueline
Wong)

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