China Money-Market Rate Climbs as Quarter-End Cash Demand Rises

China’s benchmark money-market rate rose for a second day on speculation lenders are starting to build cash reserves to meet quarter-end capital requirements.

The nation’s biggest four banks lent a combined 6.6 billion yuan ($1.04 billion) in the first week of this month and saw 272 billion yuan of deposits being withdrawn, the 21st Century Business Herald reported today, citing unidentified data. The People’s Bank of China didn’t gauge demand for bill sales today, suggesting it won’t drain cash from the system tomorrow, according to a trader at a primary dealer required to bid at the auctions.

“There’s some seasonal cash demand rising before the end of the quarter and mid-year,” said Chen Qi, co-head of fixed-income research at UBS Securities Co. in Shanghai. “We see quite a strong demand for deposits from banks during this period, and the bigger banks are reluctant to lend.”

The seven-day repurchase rate, a gauge of funding availability in the financial system, rose 15 basis points to 2.70 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.

The monetary authority reduced its one-year lending and deposit rates by a quarter of a percentage point on June 8 to revive a slowing economy. It may cut banks’ reserve requirements this month should the availability of cash tighten further, Chen said.

The one-year swap rate, the fixed cost needed to receive the seven-day repurchase rate, increased nine basis points to 2.61 percent in Shanghai, according to data compiled by Bloomberg. It touched 2.30 percent on June 8, the lowest level since October 2010.

China’s finance ministry sold 26.9 billion yuan of one-year bonds at an average yield of 2.15 percent today, according to a statement posted on the ministry’s website. That compares with a median estimate of 2.18 percent in a Bloomberg News survey of seven finance companies.

The yield on the government’s 3.51 percent bonds due February 2022 rose one basis point, or 0.01 percentage point, to 3.38 percent.

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