China’s Overnight Money Rate Rebounds From Two-Month Low

China’s benchmark money-market rate dropped, adding to last week’s biggest decline in a month, on speculation the central bank will guide interbank rates lower.

The People’s Bank of China gauged demand today for sales of 91-day bills planned for this week, said a trader at a primary dealer required to bid at the auctions. It also asked lenders to submit orders for 28-day repurchase agreements and seven- and 14-day reverse-repurchase contracts, the trader said. Interest-rate swaps have fallen this month, while the PBOC cut yields on reverse repos last week by 40 basis points.

“Upcoming open-market operation rates will further guide repo and IRS rates,” said Becky Liu, a senior rates strategist at Standard Chartered Plc in Hong Kong. “The PBOC has recently changed its approach; they’ve been conducting reverse repos at different rates, unlike what’s been seen during the first and fourth quarters when they kept these rates unchanged.”

The seven-day repurchase rate, which measures interbank funding availability, fell one basis point, or 0.01 percentage point, to 3.65 percent as of 10:55 a.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. The rate slid 68 basis points last week.

The one-year interest-rate swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, was unchanged at 3.88 percent, according to data compiled by Bloomberg. It fell 11 basis points this month.

China’s central bank added 20 billion yuan ($3.3 billion) to the financial system in the week ended Aug. 9 and 136 billion yuan in the prior week, data compiled by Bloomberg show. The PBOC issued seven-day reverse-repurchase contracts at 4 percent on Aug. 6, and 14-day reverse repos at 4.1 percent on Aug. 8, both 40 basis points lower than at the previous week’s auctions.

The yield on the 3.38 percent government bonds due May 2023 rose two basis points to 3.88 percent, the highest since June 20, according to the Interbank Funding Center.

To contact Bloomberg News staff for this story: Helen Sun in Shanghai at hsun30@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net

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