China Money Rate Drops Most in Two Months as IPO Funds Return

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China’s benchmark money-market rate declined by the most in two months as funds tied up by new share sales returned to banks.

A world-beating stocks rally is fueling demand for initial public offerings. Twenty-three companies’ new share sales this week were forecast to attract 4.9 trillion yuan ($790 billion) of bids, a Bloomberg survey showed. China National Nuclear Power Co. alone accounted for 1.69 trillion yuan, close to the entire annual economic output of Hong Kong.

The seven-day repurchase rate, a gauge of interbank funding availability, fell 15 basis points to 2.03 percent in Shanghai, according to National Interbank Funding Center Prices. That was the biggest slide since April 8 and followed a 24 basis-point jump in the past three days.

“Cash availability turned better, as IPO lock-up periods came to an end,” said Chen Long, an analyst at Bank of Dongguan Co. in Guangdong province. “But I think a seven-day repo rate around 2 percent will be the bottom for this month, as mid-year funding demand is likely to tighten the market a bit.”

The rate’s gain in June has been either the biggest or second-biggest monthly increase in each of the last four years as banks hoarded cash to meet quarter-end loan-to-deposit ratio checks. June 2013 saw record levels of more than 10 percent as a crackdown on off-balance-sheet financing led to a cash crunch.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, fell nine basis points on Friday to 2.37 percent, matching the drop on May 12, data compiled by Bloomberg show.

The yield on the government’s 10-year bonds declined three basis points this week to 3.58 percent, according to National Interbank Funding Center Prices. It fell two basis points Friday. The central bank refrained from conducting open-market operations for a seventh week.

— With assistance by Helen Sun

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