China’s benchmark money-market rate opened at 2.5 percent for the fifth day in a row, a sign that’s where the central bank wants it anchored as stocks swing violently.
The seven-day repurchase rate, a gauge of funding availability in the financial system, was 2.53 percent as of 4:30 p.m. in Shanghai, a weighted average shows. Its five basis point trading range over the past week compares with 43 in the June 30-July 6 period.
Policy makers are trying to stabilize financial markets in the world’s second-largest economy after the Shanghai Composite Index of shares tumbled as much as 32 percent from a seven-year high reached one month ago. The central bank injected cash using reverse-repurchase agreements, lowered benchmark interest rates and eased some lenders’ reserve requirements to ensure an adequate supply of funds.
“As the opening price of the seven-day repo has been at 2.5 percent in the past week, we take that to be the pivotal level desired by the PBOC,” said Yan Yan, a fixed-income analyst at China Guangfa Bank Co. in Shanghai. “If it rises too much from the level, then the central bank will probably offer more reverse repos.”
Volatility in stocks spilled over to the bond market last week as some money managers dumped short-maturity debt to meet redemptions. The one-year sovereign bond yield surged 58 basis points, the biggest weekly jump in Chinabond data going back to 2007. The yield on notes due May 2016 fell seven basis points on Monday to 2.43 percent.
China’s exports rose 2.1 percent in June from a year earlier in local-currency terms, data showed Monday. Imports fell 6.7 percent, after sliding 18.1 percent in May.
The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, increased two basis points to 2.48 percent, according to data compiled by Bloomberg.
Chinese authorities are likely to grant 200 billion yuan ($32 billion) of loans to local government financing vehicles to support their projects under construction, the Economic Observer reported July 11, without saying where it obtained the information.
For more, read this QuickTake: China's Managed Markets
— With assistance by Helen Sun