PBOC May Suspend 3-Month Bill Sale as Money-Market Rates Jump

PBOC May Suspend Sale of 3-Month Bills Tomorrow, Traders Say
A pedestrian walks past the People's Bank of China in Beijing. Photographer: Nelson Ching/Bloomberg

The People’s Bank of China may suspend a scheduled sale of three-month bills tomorrow as banks hoard cash before the New Year holidays, pushing money-market rates to the highest since October.

The central bank didn’t gauge demand for the securities this morning, according to two traders who declined to be identified because the information isn’t public. The seven-day repurchase rate, a measure of interbank funding availability, touched 5 percent today as lenders sought to boost capital to meet year-end requirements.

“It’s probably a temporary suspension because of the cash crunch,” said Liu Junyu, a bond analyst in Shenzhen at China Merchants Bank Co., the nation’s sixth-biggest lender. “The central bank may cut the reserve-requirement ratio before the Lunar New Year to add liquidity to the financial system.”

The seven-day repurchase rate rose 35 basis points to 4.80 percent as of 4:30 p.m. in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center. It touched 5 percent today and yesterday, the highest level since Oct. 31. China’s markets will be closed on Jan. 2 and Jan. 3 and for a week starting Jan. 23.

A total of 13 billion yuan ($2.1 billion) of central bank bills and repurchase contracts will mature this week, down from 17 billion yuan last week, according to China Merchants’ Liu. The bill redemption will rise to 51 billion yuan in the five days starting Jan. 2, he said.

Yuan Steady

The monetary authority has sold three-month bills every Thursday since the week-long National Day holiday in October. It issued 1 billion yuan of the securities last week, when the yield was unchanged at 3.1618 percent for a 17th sale.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, dropped two basis points to 2.78 percent, according to data compiled by Bloomberg.

The yield on the 3.44 percent government bonds due June 2016 dropped one basis point, or 0.01 percentage point, to 3.07 percent, according to the Interbank Funding Center.

The yuan traded at 6.3212 per dollar in Shanghai, little changed from 6.3226 yesterday, according to the China Foreign Exchange Trade System. It touched 6.3160 on Dec. 26, the strongest level since the country unified the official and market exchange rates at the end of 1993.

The central bank set the currency’s reference rate 0.01 percent higher at 6.3146, the strongest level since a dollar peg was scrapped in July 2005.

The U.S. Treasury Department said yesterday it will seek further appreciation of the yuan and called the currency undervalued, while declining to brand China a manipulator of its exchange rate. The department, releasing its semi-annual report to Congress on the currency policies of major trading partners, said it will “closely monitor the pace” of yuan appreciation and “press for policy changes that yield greater exchange-rate flexibility.”

China will continue to push for the flexibility of the yuan’s exchange rate, Hong Lei, a spokesman for the foreign ministry, said at a press conference in Beijing yesterday.