June 16, 2017 / 9:46 AM / 3 months ago

China's money rates rise slightly, on seasonal factors

    SHANGHAI, June 16 (Reuters) - China's primary money rates
edged up slightly this week as liquidity stress from seasonal
factors outweighed huge cash injections by the central bank,
which kept short-term market rates unchanged after an
anticipated U.S. interest rate hike.
    The People's Bank of China left interest rates for its open
market operations unchanged on Thursday, shrugging off an
overnight increase by the Federal Reserve. In March, the PBOC
raised rates within hours of a Fed hike.
    Analysts said the central bank was keen to keep cash
conditions stable at the end of the quarter and stood pat on
short-term interest rates. But some pressure to raise rates will
persist, given expectations of another U.S. hike this year.
    Traders said some banks were not so willing to lend funds
this week due to the coming central bank "Macro Prudential
Assessments" (MPA) of lenders. They noted cash conditions are
traditionally tight in June, and memories remain fresh of a June
2013 crunch that sent money rates soaring and spooked global
markets. 
    In open market operations, the PBOC injected a net 410
billion yuan ($60.2 billion) through its reverse bond repurchase
agreements this week, the most since mid-January moves to meet
Lunar New Year holidays cash demands.
    The central bank said Friday's daily net injection of 250
billion yuan was to counter liquidity stress from factors
including corporate tax payments, maturing reverse repos and
maturing medium-term lending facility (MLF) loans.
    On Friday, a batch of 207 billion yuan in six-month MLF
loans were due to mature. The central bank had injected 498
billion yuan through MLFs last week, more than offseting all the
maturing MLFs in June.
    The fund support failed to drag money rates lower. 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, closed at 2.9513
percent on Friday afternoon, nearly four basis points higher
than the previous week's closing average rate of 2.9136
percent. 
    Market expectations for tightening cash conditions towards
the end of June have driven interest rates for longer-term loans
higher.
    The Shanghai Interbank Offered Rate (SHIBOR) for one-month
tenor stood at 4.6990 percent on Friday, close to
its highest level since April 2015. The three-month rate
 eased slightly this week but remained close to
26-month highs.
    While China did not follow the Fed and raise rates this
week, market watchers point out that the gap between China's
higher rates and U.S. ones has widened dramatically in recent
months.
    Ming Ming, chief analyst at CITIC Securities, said that with
the gap remaining at a "historic high", this week's Fed cut did
not put pressure on China to also raise rates.
    The interest rate gap between the two countries is around
140 basis points this month, compared with about 80 basis points
in March.
    Yields on Chinese benchmark 10-year government bonds
 stood at 3.556 percent on Friday, 138 basis points
higher than 2.1740 percent of yields on similar U.S. bonds
.

    Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.8605      2.8386      +2.19                      0.00
                                                                     
                                                                     
 Seven-day        2.9513      2.9925      -4.12                      0.00
                                                                     
                                                                     
 14-day           3.8819      3.7868      +9.51                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        3.7600      3.8400      -8.00                      954,054.6
                                                                     0
                                                                     
 Seven-day<CN7DR  4.0000      4.1250      -12.50                     51,430.00
 PO=SS>                                                              
 14-day           4.4500      4.3200      +13.00                     10,456.90
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.8500      2.8400      +1.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        3.3000      3.4400      -14.00                     
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           4.0000      3.8000      +20.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.8528      2.8317      +2.11                      
                                                                     
 Seven-day        2.9140      2.9047      +0.93                      
                                                                     
 Three-month      4.7613      4.7723      -1.10                      
                                                                     
 
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=        3.7600               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 = 6.8132 Chinese yuan)

    
 (Reporting by Winni Zhou and John Ruwitch; Editing by Richard
Borsuk)
  

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