China Money Rate Rises to Three-Month High on Carry Trade Demand

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China’s overnight money-market rate rose to a three-month high on growing demand for funds as investors borrow cash to buy bonds.

The People’s Bank of China has injected a net 90 billion yuan ($14.5 billion) into the financial system since late June, when it restarted selling reverse-repurchase agreements in open-market operations. The benchmark Shanghai Composite Index of stocks fell by the most since 2009 last month, driving investors to seek the relative safety of bonds.

“The market consensus is that the central bank will keep liquidity ample, and that’s driving investors to leverage up their trade,” said Deng Haiqing, a Beijing-based analyst at Citic Securities Co. “Many risk-averse funds have shifted to the bond market.”

The overnight repo rate, a gauge of funding availability in the banking system, rose one basis point to 1.49 percent as of 4:39 p.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. That’s the highest level since May 5. The rate has averaged 1.2 percent in the past two months while the yield on five-year Chinese corporate bonds rated AA was well over 5 percent, according to Shanghai CFETS-ICAP International Money Broking Co.

China is planning to issue at least 1 trillion yuan in bonds to fund construction projects that can help address a struggling economy, according to people familiar with the matter. The notes will be placed with Postal Savings Bank of China, they said.

The yield on July 2025 sovereign notes was little changed at 3.49 percent Wednesday, according to National Interbank Funding Center prices. The benchmark yield declined 12 basis points last month.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, fell two basis points to 2.49 percent, data compiled by Bloomberg show.

— With assistance by Helen Sun

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