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China money rates mixed but remain easy as stimulus talk intensifies
March 14, 2014 / 5:47 AM / 4 years ago

China money rates mixed but remain easy as stimulus talk intensifies

SHANGHAI, March 14 (Reuters) - China's money rates looked
set to end the week mixed on Friday, with the benchmark
seven-day repo rising slightly from the previous week but the
overnight and 14-day repo rates extending their slide on easing
money expectations.
    Beijing has signalled that it will ease up its pressure on
the interbank market as the economy shows signs of instability,
with exports posting a dramatic slide in February and
manufacturing growth continuing to slow. 
    At the same time, sources say that regulators are increasing
administrative pressure on banks to reduce lending to troubled
industries, and have also signalled they are going to allow more
debt and bond defaults going forward. 
    For investors, the question is whether this balancing act
will work. 
    Previous crackdowns on the short-term funding market
resulted in dramatic funding spikes, which traders said was
highly effective in encouraging Chinese banks to back out of the
dabbling in the riskier forms of shadow banking and get pickier
about lending.
    Official figures showed bank lending plummeted in February,
as did Total Social Financing (TSF), a homegrown indicator that
measures both formal and shadow banking activities.
    But traders caution that the seasonal factors, especially
the week-long Lunar New Year holiday in early February, have
likely distorted figures to some degree.
    Thus, economists are debating whether the central bank will
take stronger steps to stimulate the economy, including a
possible cut to reserve requirement ratios at banks, which would
inject a massive amount of long-term base money into the system.
   
    Markets continue to bet that the bank will not make any
changes to benchmark interest rates.

SHORT TERM RATES: 
 Instrument       RIC               Rate*     Change (weekly,
                                              bps)**
 1-day repo       CN1DRP=CFXS           1.86            -8.72
 7-day repo       CN7DRP=CFXS           2.54            12.65
 14-day repo      CN14DRP=CFXS          2.61           -38.63
 7-day SHIBOR     SHICNYSWD=            2.53             12.4
 
*The volume-weighted average price (Vwap) at midday Friday
** Compared to the Vwap at market close the previous Friday
 
KEY INTEREST RATE SWAPS:
 Instrument        RIC          Rate     Spread (bps)
 2-yr IRS based    CNABAD2YF=      3.02              2
 on 1-year                               
 benchmark *                             
 5-yr 7-day repo   CNYQB7R5Y=    4.4550            146
 swap                                    
 1-yr 7-day repo   CNYQB7R1Y=    4.1100            111
 swap                                    
 

*This spread can be seen as a proxy for forward-looking market
expectations of an interest rate cut or rise.                

GOVERNMENT BOND FUTURES
 Instrument      RIC    Rate      Change (weekly,
                                  bps)
 Jun 2014 5 yr   CTFM4     92.73              -3.69
 Sep 2014 5 yr   CTFU4     93.17              -3.79
 
       
        >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
    
    MARKET DRIVERS
    - China's central bank opens liquidity front in hot money
war 
    - China's attack on yuan speculators risks backfiring
 
    - Beijing eases corporate debt rules to offset crackdown
 
    - China corporate financing squeezed as reform plans spark
rate spike 
    
    DATA POINTS
    - Fiscal deposits drive interbank liquidity trends GRAPHIC:
link.reuters.com/pem75t
    - Maturing central bank bills and repos upcoming GRAPHIC: r.reuters.com/vyr95t
    - Chinese government bond curve rises on rate reform
expectations GRAPHIC: link.reuters.com/jyr95t
    - China's interest-rate swap curve rises, flattens on
liquidity fears GRAPHIC: link.reuters.com/ryr95t
    - China corp bond spreads widen on risk aversion GRAPHIC: link.reuters.com/bas95t
    - China hot money tracker: Large hot money inflows to China
in late 2013 GRAPHIC: link.reuters.com/saz74t
    
    
   >>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>   

 (Editing by Kim Coghill)

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