China Money Rate Drops as Reserve-Ratio Cut Mitigates Defaults

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China’s benchmark money-market rate declined to a 13-month low as improved cash availability after a cut in lenders’ reserve requirements offset defaults by two companies this week.

State-owned Baoding Tianwei Group Co. said Tuesday it won’t be able to pay 85.5 million yuan ($13.8 million) of bond interest, after Kaisa Group Holdings Ltd. on Monday failed to honor missed payments within a 30-day grace period. The People’s Bank of China lowered the amount of cash banks must set aside as reserves for the second time this year effective Monday. Australia & New Zealand Banking Group Ltd. estimates that will add 1.2 trillion yuan to the financial system.

The seven-day repurchase rate, a gauge of interbank funding availability, fell seven basis points to close at 2.52 percent as of 4:30 p.m. in Shanghai, a weighted average from the National Interbank Funding Center showed. It earlier reached 2.48 percent, the lowest since March 2014.

“The unusually ample liquidity helped to keep the market sentiment calm,” said Xu Hanfei, a Shanghai-based bond analyst at Guotai Junan Securities Co. “The default cases were flagged earlier, so the impact is limited.”

Power-transformer maker Baoding Tianwei became the first state-owned company to default on an onshore bond, after an April 3 statement showed it had some 1.86 billion yuan of overdue borrowings. Property developer Kaisa’s downfall started in October when its chairman went missing.

The central bank halted auctions of reverse-repurchase agreements Tuesday for the first time since February. There are 20 billion yuan of such contracts maturing this week that withdraw funds from the banking system.

Swaps Gain

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, rose for the first time in four days, adding four basis points to 2.68 percent, according to data compiled by Bloomberg. It dropped to 2.60 percent earlier, the lowest level since August 2012.

The yield on government bonds due December 2024 gained two basis points, or 0.02 percentage point, to 3.47 percent, after falling 14 basis points in the first two days of the week, National Interbank Funding Center prices show.

The Ministry of Finance sold 30.41 billion yuan of five-year bonds Wednesday, more than an initial plan of 30 billion yuan, according to a statement posted on its website. The yield was 3.24 percent, lower than 3.29 percent in a similar auction in March.

— With assistance by Helen Sun

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