China Money Rate Drops Most in Two Weeks on PBOC Injections

  • Resumption of IPOs this week has drained funds from system
  • Seven-day repo rate likely to stay in 2% to 2.5% range: SocGen

China’s benchmark money-market rate fell the most in two weeks after the central bank stepped up cash injections via open-market operations as new share sales resumed.

The People’s Bank of China auctioned 30 billion yuan ($4.7 billion) of seven-day reverse-repurchase agreements on Thursday, taking net injections this week to 50 billion yuan. Twenty-eight initial public offerings, including 10 this week, will lock up 3.4 trillion yuan of funds, according to a Bloomberg survey.

The seven-day repurchase rate, a gauge of interbank funding availability, dropped four basis points, the most since Nov. 18, to 2.298 percent in Shanghai, according to the National Interbank Funding Center. The overnight repo rate on the Shanghai Stock Exchange declined 51 basis points to 2.5 percent.

"The increase in the reverse repos is to cater for the cash demand stemming from IPO subscriptions," said Frances Cheung, Hong Kong-based head of rates strategy for Asia ex-Japan at Societe Generale SA. "The increase isn’t of any notable size. We expect the seven-day repo rate to stay within 2 percent to 2.5 percent, which the authorities would be quite comfortable with."

Debt-Swap Program

China plans to expand the size of its program for addressing high-cost local government debt to about 15 trillion yuan, Finance Minister Lou Jiwei told a closed-door meeting last month, according to a person who attended the gathering but asked not to be identified because the remarks weren’t public. The program, under which high-yielding local debt is swapped into cheaper municipal bonds, will run through the end of 2017, the minister said, according to the person. The quota for this year is around 4 trillion yuan, according to previous reports.

Expanding the swaps would be a risk for long-tenor domestic bonds and could push up yields, said Societe Generale’s Cheung. The yield on the sovereign notes due October 2025 was steady at 3.04 percent, according to Chinabond data.

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