Shanghai Exchange Repo Rate Rising as Stocks Rally Lures Funds

  • Funds leave exchange repo market to chase rebounding shares
  • Equities advancing as PBOC seen taking more easing steps

The cost of overnight loans on the Shanghai Stock Exchange has been almost three times higher this month than the average in the third quarter as an equities rally lures funds from the repurchase market.

The interest rate averaged 2.54 percent since financial markets reopened on Oct. 8 following a week-long holiday. That compares with 0.87 percent over the three months through September. It closed 119 basis points lower at 0.89 percent Tuesday after being as high as 2.92 percent earlier.

The Shanghai Composite Index of shares has rebounded 7.9 percent in four days, following a 25 percent plunge last quarter, amid speculation the government will take further steps to revive China’s slowing economy. The outstanding balance of margin lending on the bourse rose the most since December on Monday, showing people are borrowing to buy shares.

“Some investors put their money in the exchange repo market, and became lenders following the equities slump in the third quarter,” said Wang Ming, chief operations officer at Shanghai Yaozhi Asset Management LLP, which oversees 4 billion yuan ($631 million) of fixed-income securities. “Now that stocks have rebounded, the money is leaving the repo market to chase higher returns.”

The one-day repo rate on the interbank market was little changed at 1.88 percent as of 4:51 p.m. in Shanghai, a weighted average from the National Interbank Funding Center shows.

Swaps, Bonds

The People’s Bank of China auctioned 40 billion yuan of seven-day reverse-repo agreements Tuesday at 2.35 percent. That matched the amount of similar contracts due, leading to a net neutral position for open-market operations.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, declined three basis points to 2.42 percent. The yield on the 10-year sovereign bonds fell five basis points to 3.11 percent, according to prices from the National Interbank Funding Center.

— With assistance by Helen Sun

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