China’s benchmark money-market rate fell for a second day, while stocks rallied by the most in two months, as fund injections by the central bank eased a cash squeeze in the run-up to the Lunar New Year holiday.
The seven-day repurchase rate, a gauge of interbank funding availability, dropped 19 basis points to 5.25 percent in Shanghai, according to a daily fixing compiled by the National Interbank Funding Center. It fell 88 basis points yesterday, after a Jan. 20 jump of 153 basis points that prompted the People’s Bank of China to supply funds using its Standing Lending Facility and 255 billion yuan ($42 billion) of reverse-repurchase agreements. The Shanghai Composite Index (SHCOMP) rose 2.2 percent, the biggest gain since Nov. 18.
“Yesterday’s reverse repos, plus the SLF injections to both big and small banks, should have added enough liquidity to the market,” said Huang Hai, Beijing-based deputy head of the research department at SDIC CGOG Futures Co., a unit of State Development & Investment Corp. “A seven-day repo slightly higher than 5 percent is acceptable, and the central bank probably won’t inject more tomorrow.”
China’s government is loosening controls on interest rates to give markets a greater role in pricing risk, driving borrowing costs higher and spurring concern defaults will climb in the world’s second-largest economy. The PBOC is using money-market operations and cash injections to prevent rates climbing to levels that would stifle growth and heighten the chance of a credit crisis.
The seven-day repo rate reached this month’s high of 6.32 percent on Jan. 20, after averaging 4.09 percent in 2013, fixings show. Money-market rates typically spike before the week-long Lunar New Year break, which begins Jan. 31 this year and is a period in which cash gifts are made and families get together for celebratory feasts.
A one-year swap that exchanges fixed payments for the floating seven-day repo rate rose one basis point, or 0.01 percentage point, to 4.87 percent as of 4:19 p.m. in Shanghai, based on data compiled by Bloomberg. The contract earlier touched a five-week low of 4.81 percent.
The PBOC continued to ask lenders to submit orders for 21-day reverse repo contracts, besides the usual 14-day reverse repos, 28-day repos and 91-day bills for tomorrow’s open-market operations, according to a trader at a primary dealer required to bid at the auctions.
The Ministry of Finance sold 24 billion yuan of 10-year bonds at a yield of 4.45 percent today, according to a trader who participates in government debt auctions. That compares with 4.71 percent when notes of that tenor were last sold on Nov. 20.
The yield on the government’s 4.08 percent bonds due August 2023 fell for a third day, sliding eight basis points to 4.50 percent, according to the Interbank Funding Center. That is the lowest the yield has been since Dec. 4.
The PBOC auctioned 180 billion yuan of 21-day reverse repos at 4.7 percent yesterday, along with 75 billion yuan of seven-day reverse repos at 4.1 percent. The agreements involve short-term asset purchases that pump funds into the financial system.
The central bank also expanded its SLF this week to allow small-and medium-sized banks in 10 regions to access funds on a trial basis. The facility was used to supply cash yesterday to such lenders, according to a statement posted on the PBOC’s verified micro-blog on Sina.com.