China Money Rate at Two-Month High on Partial Rollover

Updated on

China’s benchmark money-market rate rose to an eight-week high after the monetary authority refrained from rolling over some loans provided to commercial banks.

The People’s Bank of China didn’t extend at least some of the funds issued via its Medium-Term Lending Facility, people familiar with the matter said Wednesday, asking not to be identified because the decision hasn’t been made public. About 670 billion yuan ($108 billion) of three-month MLF loans mature this month, according to Bloomberg calculations based on central bank data. Lenders have to park company tax payments with the PBOC before month-end.

“The news on the MLF and the fact that banks have to prepare for tax payments are driving up short-term rates,” said Banny Lam, co-head of research at Agricultural Bank of China International Securities Co. in Hong Kong “That said, the overall liquidity in the market is ample so short-term rates won’t jump massively.”

The seven-day repurchase rate, a gauge of interbank funding availability, rose 18 basis points to 2.52 percent in Shanghai, a weighted average from the National Interbank Funding Center shows. That’s the highest level since April 21. The rate has climbed 50 basis points in eight days, the longest run of increases since March 2014.

China’s economic indicators are seeing a good trend and the country will continue structural reforms to maintain medium- to high-speed growth, according to a statement on the State Council’s website that cited Premier Li Keqiang.

The central bank refrained from conducting open-market operations this week, a stance its taken since April.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, fell two basis points to 2.53 percent, according to data compiled by Bloomberg.

Sales of sovereign bonds may total 800 billion yuan in the second half and the average monthly issuance of municipal bonds may be 332 billion yuan in the period, which is likely to lead to a further steepening of the yield curve, Linan Liu, a Hong Kong-based strategist at Deutsche Bank AG, estimated in a June 17 report.

The 10-year government bond yield dropped four basis points to 3.57 percent, National Interbank Funding Center prices show.

(Corrects sovereign bond issuance estimate in eighth paragraph.)
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