China’s benchmark money-market rate jumped to the highest level in more than a month after the central bank drained funds from the financial system and as the yuan’s drop fueled speculation capital inflows may be slowing.
The People’s Bank of China pulled 46 billion yuan ($7.4 billion) from the banking system by selling 28-day repurchase agreements at 4 percent yesterday. This followed a net 876 billion yuan withdrawal since the Lunar New Year holidays that ended in early February. The yuan has declined 1.3 percent in the past month, as the central bank allowed the currency to fall to discourage one-way appreciation bets.
“The days of loose liquidity are over as the central bank has been conducting repos, and it is almost the quarter-end, when banks’ funding needs are greater,” said Min Shuai, a Shanghai-based fixed-income analyst at Guotai Junan Securities Co. “There may be some hot money flowing out of China, as it is clear the yuan’s continuous gains are over.”
The seven-day repurchase rate, a gauge of funding availability in the interbank market, climbed 25 basis points to 3.89 percent as of 4:10 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. That’s the highest level since Feb. 18. The overnight rate increased one basis point to 2.51 percent.
The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repo rate, rose two basis points to 4.27 percent, data compiled by Bloomberg show. The contracts added seven basis points, or 0.07 percentage point, in the last two days.
China is headed for a “mini crisis” in its regional debt market as economic reforms lead to the first defaults, Li Daokui, a former member of the PBOC’s monetary policy committee, said yesterday.
The yield on the 4.08 percent sovereign bonds due August 2023 was little changed at 4.51 percent, according to data from the National Interbank Funding Center.
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