China Money Market Rate Rises After First Repos in Eight Weeks

Feb. 7 (Bloomberg) -- China’s money-market rate climbed for a second day after the central bank resumed sales of repurchase contracts for the first time in eight weeks, spurring concern cash supplies will decline.

The People’s Bank of China sold 26 billion yuan ($4.1 billion) of 28-day repo contracts at 2.8 percent, according to a statement on on the central bank’s website today. The monetary authority won’t issue any bills today, even after it gauged banks’ demand for three-month and one-year bills yesterday, according to traders at a primary dealer required to bid at the auctions, who wouldn’t be identified because the information isn’t public.

“The repo rate extended the gain started yesterday, which was caused by the news of the resumption of open-market operations,” said Guo Caomin, a bond analyst in Shanghai at Industrial Bank Co. “But the 28-day repo is the mildest liquidity draining tool among all maturities, so the resumed sale may have a very small effect on money supply.”

The seven-day repurchase rate, which measures interbank funding availability, rose five basis points, or 0.05 percentage point, to 3.50 percent in Shanghai, according to a weighted average rate compiled by the National Interbank Funding Center.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, added three basis points to 3.24 percent, according to data compiled by Bloomberg.

The yield on the 3.44 percent government bond due June 2016 dropped one basis point to 3.10 percent, according to the Interbank Funding Center. A basis point is 0.01 percentage point.

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net.