China Money Rate at 12-Week High as Investors Borrow to Buy Debt

Updated on

China’s overnight money-market rate rose to a 12-week high amid speculation investors are borrowing money to buy bonds.

Rates were affected also by the People’s Bank of China’s open-market operations, which reduced the amount of net injections to the financial system. The overnight repurchase rate, which fell to a five-year low in May as the central bank cut interest rates, has averaged 1.2 percent in the past two months, compared with 2.4 percent a year earlier. The Bloomberg China Sovereign Bond Index is heading for the biggest monthly gain since October.

“The overnight financing cost is attractive to traders who want to borrow money to fund their bond investments,” said Frank Sun, an analyst at Shanghai CFETS-ICAP International Money Broking Co. “The market consensus is that the central bank will continue to keep liquidity ample, so there’s not much concern for these investors to leverage up.”

The overnight repo rate, a gauge of interbank funding availability, rose two basis points to 1.44 percent as of 4:35 p.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. That’s the highest since May 7. The seven-day rate climbed two basis points to 2.46 percent.

The yield on the sovereign notes due April 2025 fell one basis point to 3.45 percent, National Interbank Funding Center prices show. The cost of one-year swaps, the fixed payment to receive the floating seven-day repo rate, advanced two basis points to 2.52 percent, according to data compiled by Bloomberg.

High Turnover

Turnover of overnight contracts was 1.7 trillion yuan ($274 billion) on Wednesday, or 91 percent of all contracts, National Interbank Funding Center data show. That compares with an average 84 percent in June. Volatility in stocks, which surged 150 percent in the 12 months to June 12 before plunging more than 30 percent, has driven funds to seek safety in bonds.

The PBOC sold 40 billion yuan of seven-day reverse-repo agreements Thursday at 2.5 percent, according to a statement on its website. It injected a net 20 billion yuan this week, down from 30 billion yuan in the previous period. The central bank also auctioned 50 billion yuan of three-month treasury deposits at 3.2 percent Thursday, compared with 3.4 percent in June.

— With assistance by Helen Sun

Before it's here, it's on the Bloomberg Terminal. LEARN MORE