Chinese Overnight Money Market Rates Climb to 9 Mo High

The noose is tightening around the Chinese necks. Credit is drying up. Equity markets are plunging. Their ghost cities are falling apart. The systemic culture of fraud is being laid bare, for all the world to see.

The nation’s foreign-exchange reserves dropped by a record last month, as the People’s Bank of China sold an unprecedented amount of foreign currency in an effort to stem a slide in the yuan. The monetary authority provided 410 billion yuan ($62 billion) to commercial lenders via its Medium-term Lending Facility on Tuesday and lowered the interest rates on the loans. It plans to inject more than 600 billion yuan into the financial system to meet demand before the week-long Chinese New Year holidays that start Feb. 8.

“The market is still tight, despite the injections,” said Yan Yan, a Shanghai-based analyst at China Guangfa Bank Co. “All the seasonal factors, plus the capital outflows and currency market-related liquidity drain, are tightening interbank liquidity.”

The overnight repurchase rate, a gauge of funding availability in the financial system, rose six basis points to 2.06 percent as of 10:07 a.m. in Shanghai, according to a weighted average price from the National Interbank Funding Center. It surged to 2.18 percent earlier, the highest since April 2015.

Tuesday’s MLF injections to 22 financial institutions came after 100 billion yuan of such three-month loans granted on Jan 15, and compare with 250 billion yuan of the credit that matured earlier this month. The loans will play a similar role to a reserve-requirement ratio cut, Ma Jun, chief economist at the PBOC’s research bureau, said in an interview with China Central Television on Wednesday.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, increased four basis points to 2.31 percent, data compiled by Bloomberg show. Sovereign bonds fell for a third day, pushing the yield on the notes due October 2025 up three basis points to 2.83 percent, according to National Interbank Funding Center prices.

This isn’t ‘blow out’ territory, but something to watch. The higher yields go, the more this topic will be talked about.