February 10, 2017 / 3:29 AM / a year ago

China's money rates fall on expectations of rollover of liquidity support

    SHANGHAI, Feb 10 (Reuters) - China's primary money rates on
Friday showed a fall for the week due to expectations that the
central bank would roll over its temporary liquidity support to
cushion huge amounts of funds draining in the coming weeks.
    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 2.3728
percent on Friday morning, more than 18 basis points lower than
previous week's closing average rate.
    The People's Bank of China (PBOC) skipped open market
operations for six straight trading days this week, including
Saturday, which was a make-up day for the Lunar New Year
holiday, after it surprised financial markets last Friday by
increasing the interest rates on open market operations by 10
basis points on the first day back from the long holidays.
    Traders said short-term liquidity conditions were ample
despite maturing repos draining a net 625 billion yuan ($90.89
billion) in the absence of open market operations this week, 
according to Reuters calculations.
    However, additional huge amounts of maturing loans are set
to drain funds out of the money market in the coming weeks.
    Outstanding balance of the reverse repos stood at 1.005
trillion yuan by the end of this week, with 900 billion yuan due
to mature next week, Reuters calculated based on data from the
central bank.
    Two batches of central bank-issued medium term lending
facility (MLF) loans, with a total value of 205 billion yuan,
are also set to mature in mid-February.
    Additional funds made available through the temporary
liquidity facility (TLF) will expire next week. The TLF is a new
tool introduced by the central bank in mid-January to help keep
major commercial banks flush with funds.
    Some market participants said the TLF had added around 600
billion yuan in liquidity, and there were expectations that that
the central bank would roll over the loans, contrary to
expectations earlier this week.
    "The concentrated maturity of TLF accelerated the pace of
draining funds, short-term liquidity pressure is larger compared
with a year earlier, making the TLF rollover become possible,"
CITIC Securities said in a note. CITIC expected the rollover to
have an impact similar to "a targeted reduction in banks'
reserve requirement".
    In the bond market, the most traded 10-year treasury futures
for June delivery edged up 0.15 percent as of 0305 GMT.
While yields on the benchmark 10-year treasury bonds
stood at 3.436 percent, around four basis points higher than the
previous week's close.
  Key money rates at a glance:
                  Volume-wei  Previous    Change (bps)               Volume
                  ghted       day (%)                                
                  rate (%)                                           
 Interbank repo market
 Overnight        2.2442      2.2270      +1.72                      0.00
 Seven-day        2.3728      2.5101      -13.73                     0.00
 14-day           2.8868      2.9591      -7.23                      0.00
 Shanghai stock exchange repo market
 Overnight        2.5300      1.5700      +96.00                     141,883.7
 Seven-day<CN7DR  2.9000      2.5450      +35.50                     33,000.20
 14-day           3.1100      2.9100      +20.00                     8,288.70
 PBOC Guidance Rates
 Overnight        2.2500      2.2500      +0.00                      
 Seven-day        2.6500      2.9000      -25.00                     
 14-day           3.0800      3.4600      -38.00                     
 Overnight        2.2720      2.2765      -0.45                      
 Seven-day        2.6340      2.6330      +0.10                      
 Three-month      4.1440      4.1094      +3.46                      
 Instrument            RIC         Rate          Spread vs 1 yr
                                                 official deposit
 2 yr IRS based on 1   CNABAD2YF=        0.0000              -1.5
 year benchmark                                  
 5 yr 7-day repo swap  CNYQB7R5Y=        3.8700               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
 Overview of China financial market data:

($1 = 6.8768 Chinese yuan)

 (Reporting by Winni Zhou and John Ruwitch; Editing by Simon
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