July 14, 2017 / 8:20 AM / a month ago

China money rates fall, but taxes, reserve requirements loom

    SHANGHAI, July 14 (Reuters) - China's primary money rates
fell on Friday after the country's central bank injections cash
into money markets, but traders said conditions may turn tighter
next week as banks work to meet tax obligations and reserve
requirements.
    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 2.7462
percent, nearly 6 basis points lower that the previous day's
closing average rate.
    On Friday, the People's Bank of China (PBOC) injected 100
million yuan into money markets through seven-day reverse bond
repurchase agreements. Traders said the injection helped to
compensate for the 280 billion yuan of reverse repos maturing
this week.
    For the week, the PBOC drained a net 70 billion yuan
compared with a net drain of 250 billion yuan a week earlier.
    "Money market liquidity is fine, but it's important to
consider banks' tax payments and reserve requirement
contributions next week," said David Qu, market economist at ANZ
in Shanghai. With these factors set to drain between 800 billion
and 1 trillion yuan from the markets next week, the PBOC wants
to inject money first, he said.
    On Tuesday, the PBOC resumed open market operations after a
12-session hiatus during which it had cited "relatively high" or
"appropriate" liquidity levels in the banking system.
    Traders also pointed to an ongoing National Financial Work
Conference as a factor contributing to that relatively loose
liquidity. The five-yearly meeting, which ends Saturday, will
cover topics including financial regulatory reforms and
financial safety.
    "We think the PBOC would maintain a loose atmosphere before
and during the meeting, until new policies are made. Then we
expect tightening," said a Shanghai-based trader.
    The seven-day Shanghai Interbank Offered Rate (SHIBOR) fell
to 2.8030 percent on Friday, down 1.5 basis points from the
previous close, but up 1.7 basis points from last Friday's
close.
    The one-day or overnight rate stood at 2.6028 percent, down
nearly 2 basis points from last Friday, and the 14-day repo
stood at 3.4413 percent, up more than 4 basis points from last
Friday's close.
    The spread of the five-year credit default swap rate on
Chinese sovereign debt fell 8.4 percent from last
Friday's close, to 66.92.


 Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.6028      2.6594      -5.66                      0.00
                                                                     
                                                                     
 Seven-day        2.7462      2.8050      -5.88                      0.00
                                                                     
                                                                     
 14-day           3.4413      3.6658      -22.45                     0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        2.8500      2.7500      +10.00                     940,803.9
                                                                     0
                                                                     
 Seven-day<CN7DR  3.1100      3.1150      -0.50                      60,616.70
 PO=SS>                                                              
 14-day           3.1850      3.4200      -23.50                     5,188.20
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.6200      2.6600      -4.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.0500      3.2000      -15.00                     
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           3.6000      3.6800      -8.00                      
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.6270      2.6590      -3.20                      
                                                                     
 Seven-day        2.8030      2.8184      -1.54                      
                                                                     
 Three-month      4.2810      4.2900      -0.90                      
                                                                     
 
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=        3.7100               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:

    
 (Reporting by Andrew Galbraith; Editing by Sam Holmes)
  

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