By Pete Sweeney
SHANGHAI, Nov 22 (Reuters) - China's money rates eased up
this week after the central bank poured cash back into the
market following an unusual mid-month spike last week, but
traders remained on edge with rates elevated
The weighted average for the benchmark seven-day bond
repurchase contract stood at 4.88 percent on
Friday afternoon, down from 5.45 percent at the previous
Friday's close. But the rate was still well outside the 3
percent range traders consider indicative of comfortable
The 14-day repo and overnight repo rates posted similar
The cause of the market jitters is twofold. Traders say
banks and other participants in the interbank market have
hunkered down and held cash on concerns that the People's Bank
of China (PBOC) is set to tighten short-term money conditions
going forward through open market operations.
By reducing the cash supply on a weekly basis, the central
bank hopes to reduce inflationary pressure and calm housing
markets -- which have been stimulated by strong hot money
inflows into China in recent months -- without crimping healthy
growth in other parts of the economy.
Indeed, interest rate swaps based on the 1-year fixed
deposit rate are still not pricing in a rise in
benchmark deposit rates.
The PBOC and commercial banks purchased 441.6 billion yuan
($72.47 billion) worth of foreign exchange on a net basis in
October, up sharply from September's 126.4 billion yuan,
indicating strong inflows seeking to capitalise on a
strengthening yuan. A byproduct of these flows has been a flood
of liquidity into the interbank market.
In addition to concerns that mild tightening is under way,
there are signs of a secular trend pushing up yields in Chinese
debt capital markets across the board: economic reform.
Chinese bond prices have been hammered in recent days on
expectations that reforms to loosen government control of
interest rates will cause funding costs to rise.
The yield on benchmark 10-year government bonds closed at 4.72 percent on Wednesday, the highest
level since March 2005 and up from 3.42 percent in late May.
SHORT TERM RATES:
Instrument RIC Rate* Change (weekly,
1-day repo CN1DRP=CFXS 3.93 -60.09
7-day repo CN7DRP=CFXS 4.88 -57.08
14-day repo CN14DRP=CFXS 6.05 -12.59
7-day SHIBOR SHICNYSWD= 4.76 -54.8
*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 on 1 CNABAD2YF= 3.0825 8
5 yr 7-day repo swap CNYQB7R5Y= 4.65 165
1 yr 7-day repo swap CNYQB7R1Y= 4.53 153
*This spread can be seen as a proxy for forward-looking market
expectations of an interest rate cut or rise. Most rate
adjustments are made in 25 bps increments.
GOVERNMENT BOND FUTURES
Instrument RIC Rate Change
Dec 2013 5 yr CTFZ3 91.21 -55.00
Mar 2014 5 yr CTFH4 91.71 -56.70
Jun 2014 5 yr CTFM4 92.18 -50.14
- China regulator drafts new rules to tame shadow banking
- China corporate financing squeezed as reform plans spark
- Unprecedented securitisation plan aims to slow rapid money
- China investors face bumpy ride as reform speculation
- Interbank liquidity tracker: Fiscal deposits, FX inflows
drive liquidity trends http://link.reuters.com/pem75t
- Impact of maturing central bank bills and repos GRAPHIC: http://link.reuters.com/pem75t
- Chinese government bond curve steepens as growth fears
ease GRAPHIC: http://link.reuters.com/jyr95t
- China's interest-rate swap curve steepens as growth
prospects improve GRAPHIC: http://link.reuters.com/ryr95t
- China corporate bond spreads narrowed on improving growth
outlook GRAPHIC: http://link.reuters.com/bas95t
- China hot money tracker: Hot money returned to China in
Sept after two months of outflows GRAPHIC: http://link.reuters.com/saz74t
($1 = 6.0932 Chinese yuan)
(Editing by Jacqueline Wong)
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(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:)
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