China’s Key Money Rate Declines as IPO Cash Squeeze Seen Easing

China’s benchmark money-market rate fell, trimming this week’s increase, amid speculation the supply of cash will improve following subscription periods for after ongoing initial public offerings of shares.

Five Chinese companies started to market stock on July 23, locking up 415.5 billion yuan ($67 billion) in bids, Shanghai Securities News reported today, citing corporate statements. About 30 billion yuan of the People’s Bank of China’s repurchase contracts are scheduled to mature next week, after 18 billion yuan of redemptions this week, data compiled by Bloomberg show. This week was the first since February in which the central bank refrained from offering repos.

“With IPO-related liquidity set to be unlocked next week, cash demand will ease, driving money rates lower,” said Shi Lei, head of fixed-income research at Ping An Securities Co. in Beijing.

The seven-day repurchase rate in the interbank market fell four basis points to 4.12 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. It jumped 36 basis points this week.

A seven-day repo rate for loans secured using government bonds listed on the Shanghai Stock Exchange slid 193 basis points, or 1.93 percentage points, today to 4.02 percent, while the overnight rate tumbled 11.19 percentage points to 4.97 percent after four days of increases.

China’s manufacturing expanded the most in 18 months in July, a private report indicated yesterday. A preliminary Purchasing Managers’ Index from HSBC Holdings Plc and Markit Economics was at 52, compared with the 51 median estimate in a Bloomberg News survey and a final reading of 50.7 in June. Numbers above 50 indicate expansion.

PBOC Injection

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, slid five basis points to 3.79 percent in Shanghai, data compiled by Bloomberg show. It fell 28basis points this week, the most since the period ended April 18.

The yield on the 4 percent government bonds due June 2024 fell five basis points to 4.30 percent today and dropped 15 basis points from a week ago, according to the National Interbank Funding Center.

“The liquidity tightness that market participants had been preparing for didn’t materialize, hence rates are back down,” said Frances Cheung, head of Asian rates strategy at Credit Agricole CIB in Hong Kong. In addition, “the PBOC appears to be quite supportive of liquidity.”

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