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IPO demand pushes up Chinese money rates; pressure set to drop
July 25, 2014 / 7:16 AM / 3 years ago

IPO demand pushes up Chinese money rates; pressure set to drop

SHANGHAI, July 25 (Reuters) - Chinese money rates rose this
week on demand for funds for a slew of initial public offerings
(IPO) but rates are expected to fall back next week as IPO cash
is released, with a major policy bank also lending actively,
traders said.
    The benchmark weighted average of the seven-day bond
repurchase agreement stood at 4.11 percent by
midday, up 36 basis points from last week's close. The overnight
repo rate was at 3.37 percent, up 7 basis points. 
    But another actively traded maturity, the 14-day repo
, fell 14 basis points this week to 4.89 percent
because funds tied up in IPO subscriptions will be released next
week.
    Nine companies opened IPO subscriptions to investors on
Wednesday and Thursday. Data available by Friday for Wednesday's
five IPOs showed their subscriptions had taken up 415.5 billion
yuan ($67 billion), the official Shanghai Securities News
reported.
    Local media have estimated the IPOs could temporarily lock
up as much as one trillion yuan in funds until early next week.
    "The impact of the IPO subscriptions is expected to fade
next week," said a trader at a Chinese commercial bank in
Shanghai. "So there is no panic, with many banks lending today."
    Among the main lenders on Friday was the China Development
Bank (CDB), traders said. The abundance of cash from the
country's top policy bank appeared to be related to 1 trillion
yuan injected into it by the Chinese central bank of late.
 
    
    LONG-TERM LIQUIDITY SUPPLY UNCERTAIN
    While the market widely expects liquidity conditions to
improve next week, a further slowdown in capital inflows into
China makes long-term supply in the money market less certain,
traders said.
    Data released on Tuesday showed that China's central bank,
together with commercial banks, sold 88.3 billion yuan of
foreign exchange on a net basis in June, reversing net purchases
of 37.5 billion yuan in May and the first time they sold foreign
currency in 10 months. 
    The data supported regulators' comments that China saw some
capital outflows in the second quarter of this year after
pressure from inflows in the first quarter.
    But China may see more capital inflows in the rest of 2014,
the foreign exchange regulator said on Wednesday.
 
    Currency purchases and sales by the People's Bank of China
(PBOC) are a main source of local currency inflows into and out
of the domestic monetary base and thus have a major impact on
China's money market.
    The PBOC skipped this week's open market operations, thereby
effectively injecting funds into the money market via maturing
repos for the 11th straight week. 
    Traders said this was part of the central bank's efforts to
ensure sufficient liquidity in the money market at a time when
supplies stemming from currency purchases have been reduced. 
    The government is urging more effort to help cushion a
slowdown in growth in the world's second-largest economy.
 
         
 SHORT TERM RATES: 
 Instrument         RIC               Rate*   Change (weekly,
                                              bps)**
 1-day repo                             3.37             7.74
 7-day repo                             4.11            35.68
 14-day repo                            4.89           -14.02
 7-day SHIBOR                           4.08               43
 
*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                  2.9704            -3
 year benchmark *                             
 5 yr 7-day repo swap                 4.2417           124
 1 yr 7-day repo swap                 3.8500            85
 
*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
                                    (pct)
 Sep 2014 5 yr               93.02              35.19
 Dec 2014 5 yr               93.01             -23.48
 Mar 2014 5 yr               93.43             -21.59
 
        >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
    
    MARKET DRIVERS
    - China money rates fall, markets return to normal after
deadline passes 
    - 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
liberalizing 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 = 6.2 Chinese Yuan)

 (Reporting by the Shanghai Newsroom; Editing by Alan Raybould)

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