SHANGHAI, May 5 China's primary money rates
hovered at elevated levels for the week and fell on Friday,
although a small cash injection from the central bank reassured
the market that the authorities' switch to a tightening of
policy will be gradual.
Cash conditions failed to improve this week, after the
typical month-end peak demand for cash a week earlier, with some
key market rates hovering at around two-year high.
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, closed at
3.1812 percent on Wednesday, not far from last Friday's closing
of 3.1818 percent, the highest level since April 2015.
The seven-day rate eased to 2.8823 percent on Friday, around
28 basis points lower than the previous week's closing average
The surge in the market rates came after a modest net cash
injection through PBOC open market operations and in the
absence of a medium-term lending facility (MLF) rollover,
traders said, which dampened market sentiment.
They added that the move clearly reflected the authorities'
intention to keep liquidity balanced, although with a tightening
bias, in an apparent attempt to reduce leverage and risk in the
The People's Bank of China (PBOC) injected a net 10 billion
yuan ($1.45 billion) through open market operations this week,
sharply down from a net injection of 70 billion yuan a week
The weekly net injection was the lowest in a month, and the
PBOC skipped two days of operations this week, attributing its
absence to "appropriate" liquidity in the banking system.
In addition, the PBOC held back from rolling over 230
billion yuan worth of six-month medium-term lending facility
loans that matured on Wednesday.
Traders and analysts expect the central bank to extend the
maturing MLF loans in the near term, with some saying the PBOC
might decide to roll over the loans when another batch falls
due on May 16.
"We expect China's central bank to provide new MLF loans in
the coming future to manage market expectations," Scotiabank
said in a note.
A batch of 179.5 billion yuan of six-month MLF loans is due
to mature on May 16.
The liquidity squeeze drove the bond yields higher. The
benchmark 10-year treasury yields climbed to 3.572
percent on Friday, around 10 basis points higher than the
previous week's close of 3.477 percent.
The Shanghai Interbank Offered Rate (SHIBOR) for the
seven-day tenor fell to 2.9186 percent, nearly five basis points
higher than the previous week's close.
Key money rates at a glance:
Volume-wei Previous Change (bps) Volume
ghted day (%)
Interbank repo market
Overnight 2.8137 2.9040 -9.03 0.00
Seven-day 2.8823 3.1631 -28.08 0.00
14-day 4.1127 4.2431 -13.04 0.00
Shanghai stock exchange repo market
Overnight 3.3550 1.8950 +146.00 430,855.9
Seven-day<CN7DR 3.3450 2.8000 +54.50 69,095.70
14-day 3.4200 3.2100 +21.00 11,345.00
PBOC Guidance Rates
Overnight 2.8000 2.8700 -7.00
Seven-day 3.4400 4.3000 -86.00
14-day 4.0000 4.4000 -40.00
SHANGHAI INTERBANK OFFERED RATE
Overnight 2.8348 2.8506 -1.58
Seven-day 2.9186 2.9270 -0.84
Three-month 4.3608 4.3476 +1.32
KEY INTEREST RATE SWAPS:
Instrument RIC Rate Spread vs 1 yr
2 yr IRS based on 1 CNABAD2YF= 0.0000 -1.5
5 yr 7-day repo swap CNYQB7R5Y= 4.0200 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 = 6.8960 Chinese yuan)
(Reporting by Winni Zhou and John Ruwitch; Editing by Eric