China Money Rate Drops as PBOC Cuts Yield Paid on Reverse Repos

China’s benchmark money-market rate dropped the most since January as the central bank lowered the interest rate it pays on reverse-repurchase agreements.

The People’s Bank of China said it auctioned 35 billion yuan ($5.6 billion) of seven-day reverse repos at 3.75 percent, down from 3.85 percent when the contracts were last offered on Feb. 3. The move comes after the monetary authority cut its benchmark interest rates over the weekend for the second time in three months.

The seven-day repurchase rate, a gauge of funding availability in the banking system, fell 23 basis points to 4.73 percent, a fixing released by the National Interbank Funding Center shows. That’s the biggest one-day drop since Jan. 23. The rate has averaged 4.30 percent this year, up from 3.62 percent in 2014.

“The central bank is trying to lower the front-end rates to ensure that short-term borrowing costs are falling along with the long-end,” said Liu Changjiang, a Shanghai-based analyst at Essence Securities Co. “We don’t rule out the possibility that it will further lower reverse-repo rates.”

The yield on China’s sovereign bonds due September 2024 rose four basis points, or 0.04 percentage point, to 3.43 percent, according to National Interbank Funding Center prices. The benchmark 10-year yield is falling for a fifth straight quarter and sank to 3.34 percent on Feb. 17, the lowest since August 2012, ChinaBond data show.

Some institutions have been selling bonds to lock in profits on their holdings, Guotai Junan Securities Co. analysts led by Xu Hanfei in Shanghai wrote in a note Tuesday.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, were little changed at 3.43 percent, data compiled by Bloomberg show. It earlier touched a three-month high of 3.50 percent.

There are 220 billion yuan of reverse repos maturing this week that will drain funds from the financial system, data compiled by Bloomberg show. The central bank’s open-market operations pulled a net 142 billion yuan from the financial system last week, the first withdrawal since September.

The PBOC cut its one-year deposit and lending rates by 25 basis points to 2.5 percent and 5.35 percent, respectively, effective March 1.

— With assistance by Helen Sun

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