December 23, 2016 / 8:12 AM / 7 months ago

China's money rates decline as liquidity pressure eases

7 Min Read

SHANGHAI, Dec 23 (Reuters) - China's primary money rates,
which rose at the start of this week, were largely lower on
Friday as liquidity tightness eased after fund injections by the
central bank and progress resolving a bond scandal that rocked
the market.
    The volume-weighted average rate of the benchmark seven-day
repo traded in the interbank market, considered
the best indicator of general liquidity in China, was 2.4492
percent Friday afternoon.
    That was nearly 20 basis points lower than the previous
week's closing average rate. On Monday, the weighted average
rate was 2.6580 percent.
    At the beginning of the week, liquidity was squeezed after
media reports about forged bond agreements at Sealand Securities
, which hit market confidence. 
    "Institutions who had money were unwilling to lend to
others," said a trader at a Chinese bank in Shanghai.
    The trader added that the market didn't gain momentum until
it received liquidity support and Sealand Securities announced
moves to deal with the issue. 
    At least one Chinese state lender provided several billion
yuan to fund management firms via short-term lending tools on
Wednesday, two sources told Reuters. 
    The injection came the same day Sealand said it would take
responsibility for the bond agreements. On Thursday, the
brokerage said it had reached consensus with counterparties to
jointly share potential losses stemming from "forged" bond
agreements totaling 16.5 billion yuan ($2.37 billion) at most.
 
    Some traders said market sentiment was "largely improved"
after Sealand's filings to the Shenzhen stock exchange.
    Separately, the People's Bank of China injected 375 billion
yuan to money market through its open market operations this
week, compared with the previous week's net 250 billion yuan
injection.
    Matured reverse repos will drain a total of 840 billion yuan
next week, according to Reuters calculations based on data from
the central bank.
    Traders said they wouldn't worry about the net drain through
open market operations, as they expect liquidity to remain
relatively loose in the remainder of the year.
    The Ministry of Finance traditionally steps up distribution
of fiscal deposits to firms and individuals who benefit from
government programs. That revenue lifts deposits in the banking
system, traders said.
    Households and companies will begin to shore up cash
positions soon for the Lunar New Year holiday, which starts in
late January.
    On Friday morning, the Shanghai Interbank Offered Rate
(SHIBOR) for seven-day tenor was fixed at 2.5430 percent, 2.4
basis points higher from the previous week's close.
    The spread of the five-year credit default swap rate on
Chinese sovereign debt fell 0.72 percent at
117.39.    
    
 
Key money rates at a glance:
  
    
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.1386      2.1825      -4.39                      0.00
                                                                     
                                                                     
 Seven-day        2.4492      2.5465      -9.73                      0.00
                                                                     
                                                                     
 14-day           3.0788      3.2506      -17.18                     0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        5.1000      6.2550      -115.50                    874,694.9
                                                                     0
                                                                     
 Seven-day<CN7DR  4.6000      3.9950      +60.50                     61,427.70
 PO=SS>                                                              
 14-day           4.4300      4.4100      +2.00                      12,535.80
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.1500      2.2000      -5.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.5500      2.7000      -15.00                     
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           4.0000      3.2000      +80.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.3230      2.3410      -1.80                      
                                                                     
 Seven-day        2.5430      2.5440      -0.10                      
                                                                     
 Three-month      3.2337      3.2267      +0.70                      
                                                                     
 
KEY INTEREST RATE SWAPS:
 Instrument            RIC         Rate          Spread vs 1 yr
                                                 official deposit
                                                 rate*
 2 yr IRS based on 1   CNABAD2YF=        0.0000              -1.5
 year benchmark                                  
 5 yr 7-day repo swap  CNYQB7R5Y=        3.7400               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 = 6.9494 Chinese yuan renminbi)

    
 (Reporting by Winni Zhou and David Stanway; Editing by Richard
Borsuk)

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