China’s Money-Market Rate Completes Biggest Weekly Drop of 2014

China’s benchmark rate for loans between lenders completed the biggest weekly drop this year after the central bank scaled back cash withdrawals in its money-market operations.

The People’s Bank of China drained a net 70 billion yuan ($11.4 billion) this week via sales of repurchase agreements, data compiled by Bloomberg showed. That compares with 160 billion yuan last week, and was the smallest amount since the week-long Lunar New Year holiday ended Feb. 6. Shanghai Chaori Energy Science & Technology Co. failed to pay full interest due today on its onshore bonds, according to Vice President Liu Tielong. The yuan rose 0.31 percent this week, rebounding from a record 1.38 percent drop in February.

“The operations yesterday were so mild, leading the rates to fall again,” Xu Hanfei and Min Shuai, analysts at Guotai Junan Securities Co., wrote in a note today. “There were no signs of tightening, the yuan’s depreciation expectations have weakened, and the market has digested the impact of a Chaori default. All of these helped to improve market sentiment.”

The seven-day repurchase rate, a gauge of funding availability in the banking system, tumbled 110 basis points this week to 2.42 percent as of 4:30 p.m. in Shanghai, according to a weighted average published by the National Interbank Funding Center. The rate dropped six basis points, or 0.06 percentage point, today.

Swaps Fall

One-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, fell for a second day, sliding six basis points to 4.41 percent, data compiled by Bloomberg show. The rate rose three basis points this week.

The default by Chaori became the the first in China’s publicly traded domestic debt market since at least 1997. A commentary by the official Xinhua News Agency yesterday said the case should help to reduce moral hazard stemming from the assumption that the government will always bail out failed investments with taxpayers’ money.

The yield on the government’s 4.08 percent bonds due August 2023 was unchanged today at 4.5 percent, leaving an eight basis point increase for the week, data from the National Interbank Funding Center shows.

China’s central bank completed draft rules on deposit insurance last year and may release the rules soon, China Business News reported today, citing an unidentified person close to the PBOC.

— With assistance by Helen Sun

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