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Chinese money rates tumble to 4-month lows on easing expectations
April 3, 2015 / 4:47 AM / 2 years ago

Chinese money rates tumble to 4-month lows on easing expectations

By Lu Jianxin and Pete Sweeney
    SHANGHAI, April 3 (Reuters) - Chinese money rates fell
sharply for the third week in a row, buoyed by widespread
expectations the People's Bank of China (PBOC) will continue to
ease monetary policy to support growth in the world's
second-largest economy, traders said.
    "Few if any in the market doubt that the PBOC will stick to
its easing bias for the rest of this year, although investors
are divided over the pace of such relaxation," said a trader at
a major Chinese commercial bank in Shanghai.
    "There is the potential for the seven-day repo to fall below
the psychological barrier of 3 percent later this year."
    The volume weighted average yield for the benchmark
seven-day repo rate stood at 3.4 percent by midday
on Friday, its lowest level since late November and down 53
basis points from the end of last week.
    The 14-day repo was down 47 basis points on the week at 3.92
percent, its lowest since early December.
    The PBOC cut official interest rates in late February in its
effort to support the economy as momentum slows, after its first
cut in more than two years in November and a reduction in banks'
reserve requirement ratios (RRR) in early February.
    Traders now expect the central bank will cut the RRR again
in April, but another rate cut might not come until May or June.
    In the latest sign that monetary policy is likely to remain
relaxed, the government announced earlier this week a bigger tax
break and a cut in down-payment requirements for second homes,
stepping up its fight against sliding house prices.
 
    On the demand side, China's securities regulator approved 30
initial public offerings (IPOs) late on Thursday, a move that
analysts said aimed at cooling a stock market rally that has
seen the benchmark blue-chip index surge 13 percent
since the start of the year. 
    Chinese investors generally show strong interest in new
share issues and subscriptions to IPOs can lock up huge amounts
of cash for a few days and divert funds from existing shares,
cooling the secondary market.
    The official Chinese Securities Journal estimated on Friday
that the latest batch of IPOs could tie up as much as 3.7
trillion yuan ($597 billion) in subscriptions for brief periods
over the next two weeks.
        
 SHORT TERM RATES: 
 Instrument     RIC              Rate*    Change
                                          (weekly,
                                          bps)**
 1-day repo                         2.82         -37.03
 7-day repo                          3.4         -52.93
 14-day repo                        3.92         -47.35
 7-day SHIBOR                       3.51          -38.7
 
*The volume-weighted average price (Vwap) at midday Friday
** Compared to the Vwap at market close the previous Friday
 
KEY INTEREST RATE SWAPS:
 Instrument            RIC            Rate     Spread vs 1 yr
                                               official deposit
                                               rate*
 2 yr IRS based on 1                     2.32               -18
 year benchmark                                
 5 yr 7-day repo swap                    3.41               +91
 1 yr 7-day repo swap                     3.3               +80
 
*This spread can be seen as a proxy for forward-looking market
expectations of an interest rate cut or rise.

GOVERNMENT BOND FUTURES
 Contract       RIC       Rate*      Pct
                                     change
                                     (pct)
 Jun 2015                     97.11    -0.35
 Sep 2015                     97.43     -0.3
 Dec 2015                     98.18    -0.39
       
        >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
    
    MARKET DRIVERS
    - China won't consider more rate cuts or easing until Q4
data out 
    - China ready to cut rates again on fears of deflation
 
    - China cuts interest rates to spur growth, ease debt
pressure 
    - As China looks to ease policy, yuan may be set to fall
 
    - Lending relaxation to help stabilise market interest rates
 
    - As cash crunch anniversary looms, traders guess at c.bank
policy direction 
    - Muted impact of capital inflows a step towards
liberalizing deposits 
    - Tax man's attack on shadow banking startles markets
 
    - China eases Jan credit squeeze with cash, surprising
transparency 
    - Market braces for bouts of tight liquidity in 2014
 
    - Beijing eases corporate debt rules to offset crackdown
 
    - China corporate financing squeezed as reform plans spark
rate spike 
    
    DATA POINTS
    - Fiscal deposits drive interbank liquidity trends GRAPHIC:
link.reuters.com/pem75t
    - Maturing central bank bills and repos upcoming GRAPHIC: r.reuters.com/vyr95t
    - Chinese government bond curve rises on rate reform
expectations GRAPHIC: link.reuters.com/jyr95t
    - China's interest-rate swap curve rises, flattens on
liquidity fears GRAPHIC: link.reuters.com/ryr95t
    - China corp bond spreads widen on risk aversion GRAPHIC: link.reuters.com/bas95t
  
    
   >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>   

($1 = 6.2164 Chinese yuan)

 (Editing by Alan Raybould)

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