October 12, 2018 / 7:52 AM / 9 months ago

China money rates fall ahead of reserve requirement cut taking effect

    SHANGHAI, Oct 12 (Reuters) - China's primary money rates fell this week
after China's central bank said it would reduce the level of cash banks must
hold in reserve, and as demand for money eased at the beginning of a new
    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 2.5948 percent on Friday, down 9.13 basis
points from its closing level of 2.6861 percent on Sept. 28, the end of the
previous trading week.
    China's markets were closed the week of Oct. 1 for the National Day
    The seven-day Shanghai Interbank Offered Rate (SHIBOR) fell to 2.6150
percent, 11.5 basis points lower than the closing rate of 2.7300 percent on
Sept. 28.
    Rates were elevated late in September amid higher demand for cash from
corporates and households at the end of the quarter and before the long
National Day break.
    The one-day or overnight rate stood at 2.4247 percent on Friday afternoon
and the 14-day repo stood at 2.5400 percent.
    Rates fell despite the People's Bank of China (PBOC) skipping open market
operations each day this week, draining a net 160 billion yuan ($23.13
billion). On Friday, the bank said in a statement that banking system
liquidity was at a "relatively high level."
    On Sunday, the PBOC made its latest move to support financial system
liquidity, announcing that it would cut reserve requirement ratios (RRRs) for
banks by 100 basis points, effective Oct. 15.
    After the cut, large commercial lenders will be required to set aside cash
reserves equal to 15.5 percent of deposits. The RRR for smaller banks will be
13.5 percent.
    While the announcement of the RRR cut did little to soothe domestic equity
markets, which succumbed to a global rout and pulled the Shanghai Composite
index to a near four-year lows on Thursday, a senior trader in
Shanghai said that China's bond markets remained insulated from the ructions
of global markets. 
    "Fundamentals are quite different for China. We are still loosening," he
    The yield on benchmark 10-year Chinese treasury bonds was at
3.601 percent on Friday, down 5.2 basis points since Sept. 28, according to
Refinitiv Eikon data. 
    That compares with a 12.6 basis point jump in yields on equivalent US
bonds over the same period. Strong U.S. economic data and hawkish
remarks by Federal Reserve officials prompted a global bond sell-off that
drove U.S. 10-year yields to multi-year highs this week.
    But a senior executive at an asset management firm in Shanghai said the
relative quiet in China's onshore market may not be long-lived.
    "The RRR cut made market participants believe we are different," he said,
adding that he expected Chinese bonds to "catch up" to global markets in the
weeks ahead.

 Key money rates at a glance:
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  rate (%)                                           
 Interbank repo market
 Overnight        2.4247      2.3441      +8.06                      0.00
 Seven-day        2.5948      2.5952      -0.04                      0.00
 14-day           2.5400      2.5110      +2.90                      0.00
 Shanghai stock exchange repo market
 Overnight        2.4100      2.3700      +4.00                      663,987.8
 Seven-day<CN7DR  2.5500      2.5100      +4.00                      43,514.20
 14-day           2.5750      2.5900      -1.50                      27,026.90
 PBOC Guidance Rates
 Overnight        2.4500      2.3700      +8.00                      
 Seven-day        2.6000      2.6300      -3.00                      
 14-day           2.5500      2.6000      -5.00                      
 Overnight        2.4390      2.3600      +7.90                      
 Seven-day        2.6150      2.6110      +0.40                      
 Three-month      2.8000      2.8010      -0.10                      
 Instrument            RIC         Rate          Spread vs 1 yr
                                                 official deposit
 2 yr IRS based on 1   CNABAD2YF=        0.0000              -1.5
 year benchmark                                  
 5 yr 7-day repo swap  CNYQB7R5Y=        3.2100               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 = 6.9167 Chinese yuan)

 (Reporting by Andrew Galbraith
Editing by Shri Navaratnam)
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