China’s Money Rate Jumps Most Since June After PBOC Drains Funds

China’s benchmark money-market rate jumped the most in almost five months as the central bank drained cash from the financial system for a second week.

The People’s Bank of China’s money-market operations withdrew a net 15 billion yuan ($2.5 billion) in the last four days after draining 5 billion yuan last week, according to data compiled by Bloomberg. The monetary authority auctioned 30 billion yuan of the finance ministry’s three-month deposits to banks at a yield of 6 percent yesterday, the most since June and more than the Shanghai Interbank Offered Rate of 4.71 percent for similar-term funds.

The seven-day repurchase rate, a gauge of funding availability in the banking system, rose 116 basis points, or 1.16 percentage points, to 5.45 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. That was the biggest increase since the height of a record cash crunch on June 20. The rate climbed 150 basis points this week.

“The benchmark repo surged this morning after the PBOC drained,” said Frances Cheung, a Credit Agricole CIB strategist in Hong Kong. The 6 percent yield at the ministry’s deposit auction “reflected strong demand for liquidity that covers both year-end and the Chinese New Year. Investors will be cautious about the liquidity situation again,” she said.

The finance ministry sold 20 billion yuan of 50-year bonds at a yield of 5.31 percent today, higher than the median forecast of 5.05 percent in a Bloomberg News survey.

The one-year interest-rate swap, the fixed payment needed to receive the floating seven-day repo, rose five basis points today to 4.51 percent in Shanghai, according to data compiled by Bloomberg. It increased 16 basis points in the past five days, a fourth weekly gain.

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