China Overnight Rate Declines for Ninth Day as Cash Crunch Eases

China’s overnight money-market rate dropped for a ninth day, the longest run of declines since March, as the worst cash crunch on record eased.

An index compiled by the operations office of the People’s Bank of China shows that cash supply isn’t inadequate, the Financial News, which is owned by the central bank, reported today. The monetary authority has refrained from selling bills since June 20, when both the overnight and seven-day repurchase rates climbed to all-time highs.

“Money-market conditions are normalizing,” said Wee-Khoon Chong, a strategist at Societe General SA in Hong Kong. “The PBOC is most likely to give some breathing room for banks to comply with stricter lending practices and get their books in order.”

The one-day repurchase rate, which measures interbank funding availability, fell 40 basis points, or 0.40 percentage point, to 3.31 percent as of 4:30 p.m. in Shanghai, the lowest since May 30, according to a weighted average compiled by the National Interbank Funding Center. It has declined every day since reaching a record-high 13.91 percent on June 20.

The seven-day repo rate slid 52 basis points to 4.23 percent. The rate will fall back to a range of 3 percent to 4 percent this month, Chong forecast. A daily fixing averaged 6.81 percent last month, the highest in data going back to the start of 2004, data compiled by Bloomberg show.

The PBOC signaled on June 25 that liquidity support would be focused on banks that lend to help the economy. The monetary authority gauged demand today for sales of 14-day reverse-repurchase contracts tomorrow, according to a trader at a primary dealer required to bid at the auctions. The central bank also assessed demand for 28-day repo contracts and 91-day bills, according to the trader.

Bond Futures

China may restart trading of government bond futures in September, the official China Securities Journal reported today, adding to evidence an 18-year ban may soon end. The China Securities Regulatory Commission, the nation’s stock regulator, will decide when trading will begin after the State Council approved the plan, the newspaper reported, citing people it didn’t identify. The CSRC didn’t immediately respond to faxed questions seeking comment.

The Ministry of Finance sold 26 billion yuan ($4.2 billion) of one-year bonds today at a yield of 3.48 percent, according to a statement on Chinabond’s website. That compares with the median estimate for 3.25 percent in a Bloomberg News survey yesterday. The sale drew bids for 1.43 times the amount offered, according to Chinabond. The bid-to-cover ratio was 1.32 at the last offer of similar-maturity debt on April 10.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repo rate, declined nine basis points to 3.81 percent, according to data compiled by Bloomberg.

— With assistance by Judy Chen

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