China Repo Jumps Most in 15 Months on Holiday Cash Demand, Taxes

China’s benchmark money-market rate rose the most in 15 months as demand for cash increased ahead of a public holiday next week and as corporate taxes come due.

Companies need to pay about 400 billion yuan ($64.7 billion) to 500 billion yuan in total annual taxes before the end of this month, Chen Qi, a strategist with UBS Securities Co. in Shanghai, said this week. Domestic financial markets are closed for three days from April 29.

“Onshore liquidity is getting tighter this week because we are close to the month-end, and the holiday adds more pressure on liquidity,” said Ethan Mou, a strategist at Bank of America Corp. in Hong Kong.

The seven-day repurchase rate, which measures interbank funding availability, climbed 109 basis points, or 1.09 percentage point, to 4.74 percent as of 3:37 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. That’s the biggest increase since Jan. 16, 2012. It reached 5.5 percent yesterday, the highest level since Feb. 23 last year.

China’s central bank asked participants in the nation’s interbank bond market to examine trading histories, said two people with knowledge of the matter amid reports of a probe into illegal transactions.

Bond Probe

The People’s Bank of China held a meeting last week with the China Foreign Exchange Trade System, the National Association of Financial Market Institutional Investors and other market participants to discuss possible measures for boosting control over trading, said the people, who asked not to be identified because they weren’t authorized to speak publicly about the matter. The central bank said revelations of illegal trading had recently surfaced, according to the people.

The People’s Bank of China gauged demand for 28-day repurchase contracts and 14-day reverse-repo agreements this morning, according to a trader required to bid at the sales.

The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repurchase rate, rose one basis point to 3.29 percent, according to data compiled by Bloomberg.

The government sold 30 billion yuan of 10-year bonds at a yield of 3.4207 percent, according to the finance ministry’s website. The highest winning bid yield was 3.4497 percent, the trader said.

The yield on 3.15 percent government bonds due January, 2018 was little changed at 3.18 percent today, according to the National Interbank Funding Center.

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