China Overnight Rate Advances to Two-Month High on IPO Demand

China’s overnight money-market rate rose to the highest in more than two months on quarter-end cash demand and increased funding needs before corporate share sales.

Four companies will open subscriptions for initial public offerings today, and the biggest impact on the money market will be on June 23, when an estimated 500 billion yuan ($80 billion) will be frozen at lenders, according to a report today by Shenyin Wanguo Securities Co. Chinese banks tend to hold more cash every three months to meet requirements set by regulators.

“The quarter-end regulatory checks will certainly have an impact on the liquidity, and the resumption of IPOs will add further pressure,” Shenyin Wanguo analysts led by Chen Kang in Shanghai and Luo Yunfeng in Beijing wrote in the note. “The IPO impact will diminish after June 23.”

The overnight repurchase rate, a gauge of interbank funding availability, rose five basis point, or 0.05 percentage point, to 2.67 percent as of 4:35 p.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. That was the highest level since April 11. The 14-day repo rate jumped 82 basis points, the most since March 19, to 4.49 percent.

The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repo rate, rose three basis points to 3.47 percent, data compiled by Bloomberg show. The rate fell to a two-week low of 3.375 percent yesterday.

Liquidity Operations

The People’s Bank of China sold 30 billion yuan of 28-day repo agreements yesterday, offsetting almost half of the 65 billion repo contracts maturing this week that will inject cash into the banking system, data compiled by Bloomberg show. The central bank asked lenders to submit orders for 14- and 28-day repos, 14-day reverse repos, and 91-day bills tomorrow, according to a trader at a primary dealer required to bid at the auctions.

The central bank is planning a medium-term policy rate through pledged supplementary lending, the China Business News reported today, without saying where it got the information. Interest-rate liberalization tops the nine “major” financial market reform tasks this year, Ji Zhihong, the PBOC’s financial market department head, wrote in an article in the People’s Daily today.

China’s new-home prices rose in 15 of the 70 cities tracked by the government last month from April, the fewest number of cities in two years, according to data from the statistics bureau released today.

Bond Sale

“The data highlight weakening of the residential real estate market and the risk it poses to economic recovery,” said Dariusz Kowalczyk, a Hong Kong-based senior economist at Credit Agricole CIB. “While the trend is strong and negative, however, the figures are not bad enough yet to change the big picture narrative of a stabilizing economy.”

The yield on the 4.42 percent government bonds due March 2024 rose two basis points to 4.09 percent, National Interbank Funding Center prices show.

The Ministry of Finance sold 28.01 billion yuan of 10-year notes at a yield of 4 percent today, more than the 28 billion yuan on offer, according to a statement on its website. That compares with the median estimate of 4.05 percent in a Bloomberg News survey of five traders and analysts.

— With assistance by Helen Sun

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