SHANGHAI, April 13 China's central bank resumed
injections into the money market on Thursday after a near
three-week absence, in an apparent bid to ease fears of a cash
crunch in the financial system following massive drains from
maturing debt instruments.
The market has also been on edge after a flurry of moves by
regulators to curb riskier lending activity, including a
crackdown by the banking watchdog this week on misdemeanors with
a focus on shadow banking.
Some investors are predicting a sell-off in low-grade
corporate bonds by lenders rushing to avoid penalties, which
would further strain the financial system and rattle investors.
After skipping open market operations for 13 consecutive
sessions -- saying liquidity was relatively high -- the People's
Bank of China (PBOC) injected 110 billion yuan ($15.98 billion)
into the interbank market via reverse bond repurchase agreements
It added another 83.9 trillion yuan through its pledged
supplementary lending facility (PSL).
"This reflects the central bank's intention to ease worries
of a liquidity shortage," said Wang Jingjie, a bond analyst at
Wang said 217 billion yuan worth of Medium-term Lending
Facility (MLF) loans matured on Thursday, draining cash from the
In recent months, the PBOC has shifted to a focus on
liquidity management to guide short-term interest rates and
squeeze financial institutions and speculators which it believes
to be too highly leveraged.
Underscoring the potential liquidity swings from maturing
debt instruments, China has about 4 trillion yuan worth of
outstanding MLFs, which are PBOC loans with a maturity period of
up to 12 months.
The PBOC last month completed its most rigorous quarterly
inspection of the nation's banks to date to get a better idea of
the problems it is facing.
For the first time since it was launched last year, the
Macro Prudential Assessment, or MPA, included off-balance sheet
wealth management products to give authorities a better sense of
potential risks to the financial system.
The China Banking Regulatory Commission (CBRC) this week
told lenders to conduct checks on improper trading, incentives
and innovative financing methods.
Analysts say this could force banks to shrink their
off-balance sheet investment activities, potentially hurting the
bond market, a key destination for such investments.
"Depending on how strictly the clean-up is executed ... it
is possible to see a sell-off in corporate bonds, especially
those with low ratings," said Zhou Li, president at bond-focused
asset manager Rationalstone Investment.
He suspected that a sudden slump on Thursday in the shares
of Ping An Insurance Group Co and Industrial Bank Co
Ltd could be related to checks on shadow banking,
and said the same could happen in the bond market as well.
The shares' slide was believed to have been triggered by
massive selling via a brokerage's asset management account.
But Zhou retains some optimism toward China's treasury
"China's economic fundamentals doesn't seem very solid.
That's good news for treasuries."
($1 = 6.8818 Chinese yuan renminbi)
(Reporting by Samuel Shen and John Ruwitch; Editing by Kim