March 23, 2017 / 5:18 AM / in 4 months

China's money rates fall slightly, market pressure persists

7 Min Read

    SHANGHAI, March 23 (Reuters) - Primary money rates in
China's interbank market fell slightly but remained at elevated
levels on Thursday, following a cash squeeze earlier in the week
on worries over central bank-led liquidity checks at the end of
this month.
    Cash conditions improved on Thursday morning, traders said.
    The volume-weighted average rate of the benchmark seven-day
repo traded in the interbank market, considered a
key indicator of general liquidity in China, was 2.8592 percent
at midday, more than seven basis points lower than the previous
day's closing average rate. 
    Although the seven-day funding cost inched higher to 5.40
percent at one point in morning trade, it was much lower than a
9.5 percent hit intraday on Tuesday, its highest since January
2014.
    "Such a balanced situation won't last long, quarter-end peak
season (for cash demand) is coming," said a trader at a Chinese
bank in Shenzhen, adding the cash squeeze could happen again in
the run-up to the end of the month.
    In addition, the People's Bank of China's quarterly
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 widely expect the tightened supervision
associated with the MPA assessment to weigh on the money market.
    The central bank is expected to "maintain onshore liquidity
conditions at a proper level to curb overleverage", Scotiabank
said in a note.
    Another Shanghai-based trader at a Chinese bank said the
overall amount of funds in the market was ample.
    "The PBOC guarantees the quantity of money in the market,
but does not ensure the funding cost now," the trader said.
    The PBOC injected 30 billion yuan ($4.36 billion) via
reverse repurchase agreements on Thursday, matching the value of
repos maturing repos the same day.
    A second trader noted a big contradiction in the market
between banks and non-banking financial institutions, which rely
heavily on wholesale funding. 
    "As the MPA assessment is approaching, banks are lending
less money to non-banking institutions, forcing the structural
imbalance of liquidity to deteriorate," CITIC Securities said in
a note.
    CITIC said non-banking financial institutions had to
increase holdings of high-yield negotiable certificates of
deposit while reducing their bond allocations.
    The Shanghai Interbank Offered Rate (SHIBOR) for same tenor
rose to 2.8070 percent, 1.6 basis points higher than previous
close.

    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.6718      2.7173      -4.55                      0.00
                                                                     
                                                                     
 Seven-day        2.8592      2.9317      -7.25                      0.00
                                                                     
                                                                     
 14-day           3.8168      3.7240      +9.28                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        7.0850      3.4600      +362.50                    190,315.2
                                                                     0
                                                                     
 Seven-day<CN7DR  4.1100      3.8750      +23.50                     12,795.90
 PO=SS>                                                              
 14-day           4.1500      4.1600      -1.00                      10,819.00
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.7000      2.6500      +5.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.4400      5.0000      -156.00                    
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           4.1000      4.2000      -10.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.6570      2.6507      +0.63                      
                                                                     
 Seven-day        2.8070      2.7910      +1.60                      
                                                                     
 Three-month      4.4396      4.4077      +3.19                      
                                                                     
 
KEY INTEREST RATE SWAPS:
 Instrument            RIC         Rate          Spread vs 1 yr
                                                 official deposit
                                                 rate*
 2 yr IRS based on 1   CNABAD2YF=        0.0000                 0
 year benchmark                                  
 5 yr 7-day repo swap  CNYQB7R5Y=        3.9300               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 = 6.8875 Chinese yuan)

    
 (Reporting by Winni Zhou and John Ruwitch; Editing by Eric
Meijer)
  

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