China’s benchmark money-market rate climbed for the fourth week in a row as lenders held on to cash to meet official requirements and demand for funds surged due to municipal bond sales.
The shortage prompted the central bank to add money to the financial system by auctioning reverse-repurchase contracts for the first time in two months on Thursday. The People’s Bank of China didn’t pull funds this week and injected more than 30 billion yuan ($4.8 billion) to lenders in targeted reserve repos, according to separate people familiar with the matters. Money rates have risen every June in the past decade as lenders look to satisfy regulatory checks and companies pay tax.
“The half-year requirement has exerted huge pressure on banks to attract deposits,” Qu Qing, a Beijing-based analyst at Huachuang Securities Co., wrote in a research note. “The reverse-repo operation shows the central bank hopes to have a smooth transition.”
The seven-day repurchase rate, a gauge of interbank funding availability, climbed 20 basis points this week to 2.93 percent as of 5:16 p.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. That’s the highest since April 9. The rate has jumped 100 basis points in June, heading for the biggest monthly gain this year.
The increased demand for cash contributed to the Ministry of Finance failing to meet targets at two sovereign debt sales this week. The first was on Wednesday, when it sold 25.16 billion yuan of two-year notes, less than the planned 26 billion yuan.
On Friday, the ministry issued 10.14 billion yuan of 273-day bills, short of the planned 15 billion yuan, according to a trader at a finance company that participates in government auctions. Local governments will issue about 2.8 trillion yuan of debt this year to swap existing high-cost borrowings and raise funds for new projects.
The PBOC auctioned 35 billion yuan of seven-day reverse repos at 2.7 percent on June 25. The contracts were last offered at 3.5 percent on April 16, before interest rates were cut by a quarter of a percentage point in May. It also rolled over 130 billion yuan of loans provided through its Medium-term Lending Facility, Caixin reported, citing people it said were from the central bank.
The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, fell three basis points from June 19 to 2.51 percent, data compiled by Bloomberg show. The contracts rose one basis point on Friday.
Government bonds declined for the week, with the yield on notes due April 2025 rising three basis points to 3.62 percent, National Interbank Funding Center prices show. The yield fell one basis point on Friday.