China Money Rate Drops to Six-Week Low as PBOC Avoids Draining

China’s money-market rate dropped to a six-week low as the central bank refrained from draining funds, further easing a cash squeeze.

The seven-day fixing rate, which measures funding in the banking system, declined one basis point to 3.59 percent, according to a National Interbank Funding Center rate set at 11 a.m. in Shanghai. That’s the lowest since May 28. It reached an all-time high of 10.77 percent on June 20.

The People’s Bank of China hasn’t sold bills to withdraw funds since June 20, when the overnight repo rate also climbed to an unprecedented level amid the worst cash crunch on record. The PBOC may resume sales of the securities should the one-day fixing, which was little changed at 3.3 percent, drop below 3 percent, said Tian Jiachao, a bond analyst in Shenzhen at China Merchants Bank Co., the nation’s sixth-biggest lender.

“The market is confident the central bank will pump in capital if the cash shortage returns,” Tian said.

The PBOC gauged demand for sales of 91-day bills tomorrow, according to a trader at a primary dealer required to bid at the auctions. It also asked banks to submit orders for 28-day repurchase contracts and 14-day reverse-repo agreements this morning, the trader said.

Bond Sale

China’s finance ministry sold at least 30 billion yuan ($4.9 billion) of seven-year bonds at a yield of 3.46 percent today, according to a different trader at a finance company that participates in government debt auctions. That compares with 3.43 percent in the secondary market yesterday, which is down from the 2013 high of 3.63 percent on June 20.

The sale drew orders for 1.38 times the amount on offer, said the trader. That was the least for similar-maturity debt since August 2012, according to data compiled by Bloomberg.

“Government bond yields are too low to attract investors,” said Chen Ying, a bond analyst at Sealand Securities Co. in Shenzhen.

Official data today showed further signs Asia’s largest economy is slowing. Exports contracted 3.1 percent in June, after rising 1 percent in May, the General Administration of Customs reported in Beijing. That compares with the median estimate for a 3.7 percent increase in a Bloomberg News survey of 39 economists. Imports declined 0.7 percent after a 0.3 percent drop in May.

The one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repo rate, rose five basis points, or 0.05 percentage point, to 3.88 percent, according to data compiled by Bloomberg.

Consumer prices rose 2.7 percent in June from a year earlier, compared with 2.1 percent in May, official data released yesterday showed. That’s still below the government’s annual target of 3.5 percent.

The yield on the 3.38 percent government bond due May 2023 climbed eight basis points to 3.62 percent, according to the Interbank Funding Center.

— With assistance by Judy Chen

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