March 30, 2018 / 8:36 AM / 4 months ago

China's money rates rise on net drain, quarter-end cash demand

    SHANGHAI, March 30 (Reuters) - China's primary money rates
moved higher this week as demand for cash rose at the quarter's
end, and as the central bank drained liquidity from markets for
a second consecutive week.
    At 0745 GMT on Friday, 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 3.0717 percent.
    That is nearly 37 basis points higher than the previous
week's closing average rate of 2.7036 percent.
    The Shanghai Interbank Offered Rate (SHIBOR) for the same
tenor rose to 2.9166 percent, up 7 basis points from 2.8464
percent the previous week.
    The one-day or overnight rate stood at 2.7779 percent and
the 14-day repo at 4.5070 percent.
    Amid what it called "reasonable and appropriate" cash
conditions in the market, the People's Bank of China (PBOC)
skipped open market operations for a sixth straight session on
    This week, the central bank drained a net 160 billion yuan 
($25.5 billion) from the market. During the previous week, it
drained 320 billion yuan.
    The effect on the net drain on rates was compounded by
rising demand for cash as banks prepared for the macroprudential
assessment (MPA), a quarterly health check by the PBOC. 
    "Until now, we've seen relatively large demand for cash to
cross into the next quarter," a trader at an Asian bank in
Shanghai said on Friday afternoon.
    A sharp fall over the past two weeks in rates on negotiable
certificates of deposit (NCDs), a popular form of interbank
debt, indicated that banks were far from squeezed for cash.
    The yield on 3-month AAA-rated NCDs, the
most common tenor and rating, was at 3.9763 percent on Thursday,
down more than 72 basis points since March 16. 
    A fixed-income portfolio manager in Shanghai said the fall
in NCD rates reflected slower issuance in the last days of
March, sufficient market liquidity and a broader flight to
quality amid talk of a United States-China trade war. 
    That slower issuance came at the end of a quarter
characterized by a spike in outstanding NCDs, with net issuance
at its highest level since the first quarter of 2017.    
    As of Thursday evening, banks had issued 2.18 trillion yuan
worth of NCDs in March, according to a Reuters analysis of
official data from the China Foreign Exchange Trade System. That
is nearly equal to a record 2.2 trillion yuan in September 2017.
    The value of outstanding NCDs also stood at a record high as
of Thursday evening, contrary to expectations that the inclusion
of NCDs in large banks' MPAs from 2018's first quarter would
limit issuers' enthusiasm for the instruments.
    In the latest move to control the NCD market, China's
regulators moved this week to limit investment in them by bond
funds, in what analysts said was a move to reduce concentration
    Key money rates at a glance:
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  rate (%)                                           
 Interbank repo market
 Overnight        2.7779      2.5570      +22.09                     0.00
 Seven-day        3.0717      2.9406      +13.11                     0.00
 14-day           4.5070      4.5149      -0.79                      0.00
 Shanghai stock exchange repo market
 Overnight        3.1600      12.2850     -912.50                    784,904.2
 Seven-day<CN7DR  3.6500      6.9400      -329.00                    53,949.90
 14-day           3.8600      5.7250      -186.50                    12,212.80
 PBOC Guidance Rates
 Overnight        2.7300      2.5600      +17.00                     
 Seven-day        3.5000      3.2000      +30.00                     
 14-day           5.0000      4.8000      +20.00                     
 Overnight        2.6900      2.5810      +10.90                     
 Seven-day        2.9166      2.8958      +2.08                      
 Three-month      4.4615      4.5247      -6.32                      
 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=        3.6600               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
 Overview of China financial market data:

($1 = 6.2738 Chinese yuan)

 (Editing by Richard Borsuk)
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