January 13, 2017 / 5:10 AM / 8 months ago

REFILE-China's money rates mixed, traders eye on MLF loans rollover

(Corrects typographical error in first paragraph)
    SHANGHAI, Jan 13 (Reuters) - China's primary money rates
were mixed for the week, and there were few signs of liquidity
tightness after the central bank injected funds, though traders
expected cash to be sucked out of the market in coming days as
firms prepare to pay taxes and demand for cash rises ahead of
the Lunar New Year holiday.
    Liquidity conditions were largely balanced this week, mainly
due to support from the central bank through open market
operations, traders said. Hopes for a rollover on medium-term
lending facility (MLF) loans further stabilized market
sentiment.
    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 2.3325
percent as of midday on Friday, around 0.8 basis points higher
than the previous week's closing average rate. 
    "The market is largely optimistic to the liquidity
conditions at the moment with borrowing cost hovering at a
relatively low level," said a Shanghai-based trader at a Chinese
bank.
    The People's Bank of China injected a net 100 billion yuan
into the market through open market operations this week after
two straight weeks of net drain. The central bank drained 595
billion yuan on a net basis a week earlier. 
    Several banking sources told Reuters on Friday that the
central bank was expected to roll over maturing medium-lending
facility loans. 
    The total amount of maturing MLF loans due this month is
435.5 billion yuan with the first batch of 101.5 billion yuan
maturing on Friday, according to Reuters calculations based on
the data from the central bank.
    The MLF is a supplementary policy tool that the People's
Bank of China uses to manage liquidity conditions and
medium-term interest rates in the banking system and money
markets.
    China's central bank is now in favor of using a combination
of open market operations and medium-term lending as the longer
tenor in MLF loans means higher interest rates, which would help
reduce leverage in the banking system.
    But traders expected cash to be sucked out of the money
market in coming days as companies were scheduled to make their
regular quarterly tax payment starting next Monday.
    Additionally, households and companies will be withdrawing 
cash from banks in preparations for the Lunar New Year holiday,
which starts at the end of this month. The peak time for cash
demand usually arrive two weeks ahead of China's biggest
holiday.
    In the bond market, the price of Chinese benchmark 10-year
treasury futures for March delivery was traded up around
0.2 percent as of midday on Friday. For the week, the
most-traded March contract was up around 0.3 percent.
    The gains in the 10-year treasury futures contracts hammered
the yields of 10-year treasury bonds lower. The
yields stood at 3.214 percent as of midday on Friday.
    The Shanghai Interbank Offered Rate (SHIBOR) for seven-day
tenor rose to 2.3980 percent, 4.3 basis points higher than the
previous week's close.
    The one-day or overnight rate stood at 2.0914 percent and
the 14-day repo stood at 2.5366 percent.
    
 Key money rates at a glance:
  
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  average                                            
                  rate (%)                                           
 Interbank repo market
 Overnight        2.0914      2.1019      -1.05                      0.00
                                                                     
                                                                     
 Seven-day        2.3325      2.2919      +4.06                      0.00
                                                                     
                                                                     
 14-day           2.5366      2.5872      -5.06                      0.00
                                                                     
                                                                     
 Shanghai stock exchange repo market
 Overnight        2.7400      4.3200      -158.00                    192,920.6
                                                                     0
                                                                     
 Seven-day<CN7DR  2.7350      2.4900      +24.50                     32,468.90
 PO=SS>                                                              
 14-day           4.6150      4.4900      +12.50                     6,555.80
                                                                     
                                                                     
 PBOC Guidance Rates
 Overnight        2.1000      2.1300      -3.00                      
 <CN1DRPFIX=CFXS                                                     
 >                                                                   
 Seven-day        2.4000      2.4000      +0.00                      
 <CN7DRPFIX=CFXS                                                     
 >                                                                   
 14-day           2.7000      2.6500      +5.00                      
 <CN14DRPFIX=CFX                                                     
 S>                                                                  
 SHANGHAI INTERBANK OFFERED RATE
 Overnight        2.1040      2.1030      +0.10                      
                                                                     
 Seven-day        2.3980      2.3940      +0.40                      
                                                                     
 Three-month      3.6874      3.6536      +3.38                      
                                                                     
 
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=        3.5800               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 Simon
Cameron-Moore)

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