December 9, 2016 / 8:32 AM / 8 months ago

China's money rates down for week on liquidity support

SHANGHAI, Dec 9 (Reuters) - China's primary money rates
eased for the week after last week's spike, as liquidity support
through a medium-term lending facility (MLF) injection by the
central bank offset the impact of a net drain through open
market operations, traders said.
    The lower rates also came the week after the usual peak when
banks drain funds out of the money market at the end of the
month to shore up their cash positions so they can meet
regulatory requirements.
    Friday's trades showed money conditions were balanced, with
few signs of pressure for the whole week, traders said.
    "Money supply and demand were largely looser this week,"
said a trader at a Chinese bank in Shanghai.
    But she said conditions may get tight again next week as
banks start to make regular monthly tax payments, sucking cash
out of the money market.
    And the tightness may persist for the remainder of the year,
with companies and bank clients withdrawing cash ahead of
January 1.
    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 2.3791
percent, 7.6 basis points lower than the previous week's closing
average rate. 
    The People's Bank of China drained a net 535 billion yuan
from the market through open market operations this week, the
most since July, compared with a net injection of 70 billion
yuan a week earlier. 
    To cushion a liquidity shortfall, the central bank injected
339 billion yuan to 24 financial institutions for six months and
one year via its MLF on Tuesday, while only 11.5 billion yuan of
loans matured on Wednesday. 
    Traders said the MLF loans stabilised liquidity conditions
and boosted market sentiment.
    Separately, the price of Chinese 10-year treasury futures
for March delivery came down nearly 0.7 percent at one
point on Tuesday. For the week, the most-traded March contract
traded down around 0.5 percent.
    The losses in the benchmark 10-year treasury futures
contracts drove the yields of 10-year treasury bonds higher. 
    "In 2017, as inflation returns, the money market will
continue to reflect a tightness bias, adding upward pressure to
bond yields," ANZ wrote in a note on Friday after China released
higher than expected November consumer inflation data.
    The Shanghai Interbank Offered Rate (SHIBOR) for the
seven-day tenor rose to 2.4928 percent, 0.8 basis points lower
from the previous close.
    The one-day or overnight rate stood at 2.2120 percent and
the 14-day repo stood at 2.6437 percent.
    The spread of the five-year credit default swap rate on
Chinese sovereign debt fell 1.73 percent at
111.26.    
   

 Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.2120      2.2125      -0.05                      {;C^F3}
                                                                     
                                                                     
 Seven-day        2.3791      2.3662      +1.29                      {;D^F3}
                                                                     
                                                                     
 14-day           2.6437      2.8023      -15.86                     {;E^F3}
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        2.5100      0.4700      +204.00                    {;F^F3}
                                                                     
                                                                     
 Seven-day<CN7DR  2.8700      2.8000      +7.00                      {;G^F3}
 PO=SS>                                                              
 14-day           2.9400      2.9150      +2.50                      {;H^F3}
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.2300      2.2300      +0.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.5000      2.5000      +0.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           2.9000      3.0000      -10.00                     
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.2925      2.2908      +0.17                      
                                                                     
 Seven-day        2.4928      2.4908      +0.20                      
                                                                     
 Three-month      3.1265      3.1144      +1.21                      
                                                                     
 
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=        3.4800               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: 

    
 (Reporting By Winni Zhou and John Ruwitch; Editing by Shri
Navaratnam)

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