SHANGHAI, March 22 Cash conditions in China's
interbank market remained tight on Wednesday as market
participants scrambled for short-term funds on concerns central
bank-led liquidity checks later this month will limit big bank's
lending to smaller peers.
The benchmark seven-day repo rate traded in the interbank
market, considered a key indicator of general
liquidity in China, opened at 2.45 percent and spiked to hit a
high of 6.0 percent at one point in morning trade. On Tuesday,
the rate spiked to 9.5 percent in intraday trade, its highest
since January 2014.
The People's Bank of China's Macro Prudential Assessment
(MPA) for the current quarter will include off-balance sheet
wealth management products (WMPs) for the first time. The
assessment is due at the end of March.
Market participants believe the tightened supervision could
pile pressure on the money market.
"The structural contradictions between supply and demand of
loans has driven rates higher but the biggest concern in the
market is still the upcoming MPA assessment," said a trader at a
Chinese bank in Shanghai, noting there is significant
uncertainty over what the full impact of the assessment would
The trader added some of the distribution of fiscal deposits
were set to arrive next week to ease tensions in the market,
which could mitigate the need for the PBOC to inject money
through longer tenors.
Huachuang Securities said in a note on Wednesday the central
bank was likely to inject some funds to targeted institutions to
avoid systemic risks of missed repayments.
The Ministry of Finance traditionally steps up the
distribution of deposits in the final week of the quarter to
firms and individuals that sign up for government programmes.
The volume-weighted average rate for the seven-day tenor
stood at 2.5603 percent by midday, around 53 basis points lower
than the previous average closing prices, which was the highest
since April 2015.
However, the volume-weighted average funding cost for
overnight debt surpassed the seven-day rate and
was trading at 2.6179 percent at the lunch break.
Traders noted the 14-day tenor was in high demand as those
funds can provide an adequate cash buffer for end of month
conditions, although the central bank has mostly offered
seven-day tenors through its open market operations.
On Wednesday, the PBOC injected 90 billion yuan ($13.08
billion) via reverse repurchase agreements, compared with 50
billion yuan of maturing repos.
The spike in the interbank money rates this week follows the
central bank's moves to raise short-term interest rates last
Economists described the tightening last week as a bid to
stave off capital outflows and keep the yuan currency stable the
day after the Federal Reserve raised U.S. rates.
The Shanghai Interbank Offered Rate (SHIBOR) for the
seven-day tenor rose to 2.7910 percent, more than
two basis points from the previous close, which was the highest
since July 2015.
Key money rates at a glance:
Volume-wei Previous Change (bps) Volume
ghted day (%)
Interbank repo market
Overnight 2.6179 2.7351 -11.72 0.00
Seven-day 2.5603 3.0883 -52.80 0.00
14-day 3.6204 4.3490 -72.86 0.00
Shanghai stock exchange repo market
Overnight 4.3700 3.9550 +41.50 157,007.1
Seven-day<CN7DR 3.9950 4.2800 -28.50 17,315.10
14-day 4.3500 4.9950 -64.50 7,887.60
PBOC Guidance Rates
Overnight 2.6500 2.6000 +5.00
Seven-day 5.0000 5.5000 -50.00
14-day 4.2000 4.8000 -60.00
SHANGHAI INTERBANK OFFERED RATE
Overnight 2.6507 2.6477 +0.30
Seven-day 2.7910 2.7680 +2.30
Three-month 4.4077 4.3846 +2.31
KEY INTEREST RATE SWAPS:
Instrument RIC Rate Spread vs 1 yr
2 yr IRS based on 1 CNABAD2YF= 0.0000 0
5 yr 7-day repo swap CNYQB7R5Y= 3.9950 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:
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 = 6.8813 Chinese yuan )
(Reporting by Winni Zhou and John Ruwitch; Editing by Sam