China Overnight Rate Completes Sixth Weekly Gain on IPO Demand

China’s overnight money-market rate climbed for a sixth week, the longest rising streak in a year, as new share sales and banks’ borrowings to meet quarter-end capital requirements drained cash.

Initial public offerings resumed this week after four months 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 Shenyin Wanguo Securities Co. About 100 Chinese firms will sell shares in mainland IPOs by year-end, China Securities Regulatory Commission Chairman Xiao Gang said May 19. Local banks need to hoard deposits to meet requirements set by regulators at the end of every quarter.

“IPOs are playing the biggest role in absorbing funds this week,” said Huang Yanhong, a fixed-income analyst at Bank of Nanjing Co. in Jiangsu province. “Coupled with quarter-end cash demand, it will continue to tighten the market next week, but rates are unlikely to spike too much.”

The overnight repurchase rate, a gauge of interbank funding availability, rose 17 basis point this week and five basis points today to 2.78 percent as of 4:28 p.m. in Shanghai, according to a weighted average from the National Interbank Funding Center. The seven-day repo rate jumped 32 basis points today, the most since April 28, to 3.49 percent. That extended its increase since June 13 to 44 basis points, the biggest weekly advance since April.

Cash Injection

The People’s Bank of China injected funds into the banking system for a sixth week in a row, adding a net 15 billion yuan as maturing repo contracts exceeded new issues, data compiled by Bloomberg show. The central bank cut reserve requirements from June 16 for most city commercial banks, non-county level rural commercial lenders and rural cooperatives, as well as some mid-sized national banks.

The cost of one-year interest-rate swaps, the fixed payment needed to receive the floating seven-day repo rate, declined four basis points, or 0.04 percentage point, this week to 3.46 percent, data compiled by Bloomberg show. It fell one basis point today.

China may announce additional “minor stimulus measures” after Premier Li Keqiang said in London that the nation will maintain a minimum growth rate of 7.5 percent, according to a front-page commentary in the China Securities Journal today.

The yield on the 4.42 percent government bonds due March 2024 declined one basis point from a week ago to 4.07 percent, National Interbank Funding Center prices show. The rate climbed two basis points today.

— With assistance by Helen Sun

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