(adds comment from trader, detail on liquidity injections)
BEIJING Dec 16 China's central bank made a
larger than expected liquidity injection on Friday morning,
helping push treasury yields down after interbank markets
tightened following the U.S. Federal Reserve's rate hike on
The People's Bank of China (PBOC) lent 394 billion yuan
($56.72 billion) via its medium-term lending facility (MLF) on
Friday with rates unchanged at 2.85 percent for six-month loans
and 3.0 percent for one-year loans.
The injection came amid signs of stress in the interbank
market, with the overnight Shanghai Interbank Offered Rate
(SHIBOR) set at 2.33 percent on Friday morning, the highest in
"The market was in panic after plunges in the treasury
futures and other rumors, but it stabilised soon after central
bank support through MLF loans," said a trader at a Chinese bank
Following the injection, midday yields on the ten-year
treasury came down 0.68 percentage points from
the market open to 3.32 percent.
During the past month, the central bank had increased the
cost of capital through open market operations in what analysts
said was an effort to tamp down speculation. And the strain on
liquidity in China's financial markets became more acute
following the Fed rate hike.
China's benchmark 10-year treasury futures tumbled
the maximum allowed 2 percent on Thursday, the biggest
single-day fall on record.
In early trade Friday, the price of 10-year treasury futures
had recovered 0.7 percent.
After draining 535 billion yuan last week, the PBOC injected
a net 250 billion yuan into the banking system this week via
open market operations, according to Reuters calculations.
And, to counter the market's illiquidity, China's securities
regulator instructed some bond market makers to continue
trading, two sources with direct knowledge of the matter told
Reuters on Friday.
China's central bank urged major commercial banks to lend to
non-bank financial institutions on Thursday afternoon after many
suspended interbank operations due to tight liquidity
conditions, Caixin reported on late on Thursday.
The PBOC intervened to help institutions such as securities
firms and fund managers after banks, including the big four
state-owned banks, became reluctant to make loans, the financial
magazine said, citing traders and institutional sources.
($1 = 6.9460 Chinese yuan renminbi)
(Reporting by Beijing Monitoring Desk, Winni Zhou and Elias
Glenn; Editing by Simon Cameron-Moore)