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China's money rates up as month-end liquidity worries flare again
November 24, 2017 / 6:38 AM / 19 days ago

China's money rates up as month-end liquidity worries flare again

    SHANGHAI, Nov 24 (Reuters) - China's primary money rates
edged up for the week on worries about tightening liquidity as
demand for cash picks up heading into the month-end, traders
said.
    The People's Bank of China (PBOC) injected a net 150 billion
yuan ($22.76 billion) via reverse repos in open market
operations this week, down from a net injection of 810 billion
yuan a week earlier.
    The previous week's net injection was the largest since
January.
    In contrast to the previous week's generous liquidity
support, the slight amount of net injection this week sent the
money rates higher.
    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 2.9058
percent on Friday afternoon, around 2.5 basis points higher than
the previous week's closing average rate of 2.8805 percent. 
    "Cash conditions in the middle of the week were very tight,
but liquidity has improved and turned balanced on Friday," said
a trader at a Chinese bank in Guangdong province.
    "But the situation for carrying over into the next month
would be hard."
    A double whammy of maturing reverse repos and seasonal
factors were expected to tighten up cash conditions next week.
    Companies usually shore up their cash positions at the end
of the month, which drains funds out of the market.
    In addition, reverse repos totalling 950 billion yuan are
due to mature next week, according to Reuters calculations based
on official data from the central bank.
    Some traders believe the central bank is likely to roll over
most of the maturing reverse repos after the PBOC reiterated in
its third-quarter monetary policy report that it would keep
liquidity basically stable by "cutting the peaks to fill in the
valley".
    In the report, the central bank also warned financial
institutions that "it is not desirable to adopt trading strategy
of rolling over overnight loans to make up the gap of
medium-to-long term liquidity gap by overly mismatching
different tenors and using short-term loans to invest long-term
debt by overly adding leverage."
    Market participants interpreted that as an official warning
to financial institutions to better manage their liquidity and
reduce their leverage.
    In the bond market, China's 10-year treasury bond yields
 remained around multi-year highs this week on
worries about tighter lending regulations and worsening market
sentiment.
    The 10-year yield traded below 4 percent on Friday, dipping
from a fresh three-year high of 4.03 percent on Thursday. The
most-traded 10-year treasury futures for March delivery
edged up 0.3 percent.

Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.7867      2.8122      -2.55                      0.00
                                                                     
                                                                     
 Seven-day        2.9058      2.9040      +0.18                      0.00
                                                                     
                                                                     
 14-day           4.6941      4.8681      -17.40                     0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        4.3250      4.4850      -16.00                     240,486.0
                                                                     0
                                                                     
 Seven-day<CN7DR  5.2600      4.9450      +31.50                     44,488.20
 PO=SS>                                                              
 14-day           4.8200      4.9000      -8.00                      2,744.70
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.8000      2.8000      +0.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.4400      3.0800      +36.00                     
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           5.0000      5.0300      -3.00                      
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.7970      2.8030      -0.60                      
                                                                     
 Seven-day        2.8730      2.8710      +0.20                      
                                                                     
 Three-month      4.6722      4.6518      +2.04                      
                                                                     
 
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=        3.9400               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 = 6.5917 Chinese yuan renminbi)

    
 (Reporting by Winni Zhou and John Ruwitch; Editing by Kim
Coghill)
  

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