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UPDATE 1-China state lenders help soothe fears of liquidity crunch
December 21, 2016 / 7:49 AM / a year ago

UPDATE 1-China state lenders help soothe fears of liquidity crunch

* Liquidity support worth several billion yuan

* Funds provided via bond repurchase agreements

* China 10-year debt futures for March surge around 1.3 percent (Adds more details, background)

SHANGHAI, Dec 21 (Reuters) - At least one Chinese state lender provided liquidity support worth several billion yuan to fund management firms via short-term lending tools on Wednesday, two sources with knowledge of the matter said.

The sources, who declined to be named because of the sensitivity of the issue, told Reuters the lender injected the funds via bond repurchase agreements, in a move that signals easier access to funding by non-bank financial institutions such as fund houses and brokerages.

The injection, which comes on the same day Sealand Securities Co promised to honour a problematic bond transaction agreement, in effect avoiding default in a high-profile bond scandal, helped ease fears of a liquidity squeeze in the financial system and boosted bond prices.

Zhou Hao, economist at Commerzbank, said China’s market liquidity conditions improved somewhat as Sealand Securities avoided defaults with its counter-parties, but cautioned that “the risk of bond deleveraging won’t disappear immediately.”

China’s 10-year treasury futures for March delivery surged around 1.3 percent in late afternoon trade, rebounding from a record intraday low touched on Tuesday.

Counterparty risks between banks and other types of financial institutions including fund houses, brokerages and trust firms, spiked after media reports last week that Sealand Securities defaulted on a bond agreement with Bank of Langfang.

Sealand Securities, which had previously denied such an agreement, said on Wednesday it would accept the responsibility for “forged bond agreements.” It had earlier said its company seal had been forged by two former employees.

$1 = 6.9507 Chinese yuan Reporting by Shanghai Newsroom; Editing by Jacqueline Wong

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