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China's money rates rise as drains liquidity

Kitco News

SHANGHAI, Nov 10 (Reuters) - China's primary money market rates moved higher on Friday, in spite of a central bank liquidity injection, as cash conditions tightened ahead of business tax payments and the week brought a net liquidity drain.

The volume-weighted average rate of the benchmark seven-day repo traded in the interbank market, considered the best indicator of general liquidity in China, was 2.9438 percent.

That was 20.5 basis points higher than the closing average rate the previous Friday, and up more than 4 basis points from one day earlier.

The seven-day Shanghai Interbank Offered Rate (SHIBOR) rose to 2.8455 percent, up 2 basis points from last Friday's close.

The People's Bank of China (PBOC) drained a net 230 billion yuan ($34.64 billion) from the market this week, following a drain of 110 billion yuan a week earlier.

However, an 80 billion yuan injection on Friday helped to keep conditions from becoming excessively tight, traders said.

"Liquidity conditions were very tight Friday morning, but we saw a turn for the better just before noon," said a Shanghai-based trader at a regional bank. "We had a net injection for the day, and in the afternoon bigger banks came out to lend to their peers."

The one-day or overnight rate stood at 2.7381 percent and the 14-day repo stood at 3.9336 percent, up 18.9 basis points on the week.

The tightness in money markets this week came as yields on Chinese government bonds remained near three-year highs, and as companies prepare to pay business taxes that start coming due in mid-month.

The yield on Chinese 10-year treasury bonds was 3.916 late Friday. Analysts say recent gains reflect selling by market participants preparing for expected regulatory tightening following the 19th Party Congress.

Data released Thursday that showed higher-than-expected inflation in October added to the upward pressure. "Recently some buying has helped to stabilise the markets. But looking at the longer term, rates may still move higher," said David Qu, markets economist at ANZ in Shanghai.

The spread of the five-year credit default swap rate on Chinese sovereign debt fell 0.41 percent to 58.71.

Key money rates at a glance:

Volume-wei Previous Change (bps) Volume

ghted day (%)


rate (%) Interbank repo market Overnight 2.7381 2.6630 +7.51 0.00 Seven-day 2.9438 2.9026 +4.12 0.00 14-day 3.9336 3.8172 +11.64 0.00 Shanghai stock exchange repo market Overnight 4.6600 3.0850 +157.50 700,802.0 0

Seven-day<CN7DR 3.8500 3.5200 +33.00 61,595.10 PO=SS> 14-day 4.0350 3.7950 +24.00 20,959.50 PBOC Guidance Rates Overnight 2.7500 2.6500 +10.00 <CN1DRPFIX=CFXS > Seven-day 3.4400 3.4000 +4.00 <CN7DRPFIX=CFXS > 14-day 4.0000 3.8000 +20.00 <CN14DRPFIX=CFX S> SHANGHAI INTERBANK OFFERED RATE Overnight 2.7170 2.6460 +7.10 Seven-day 2.8455 2.8110 +3.45 Three-month 4.4747 4.4568 +1.79 KEY INTEREST RATE SWAPS: Instrument RIC Rate Spread vs 1 yr

official deposit

rate* 2 yr IRS based on 1 CNABAD2YF= 0.0000 -1.5 year benchmark 5 yr 7-day repo swap CNYQB7R5Y= 3.9400 n/a *This spread can be seen as a proxy for forward-looking market expectations of an interest rate cut or rise

China FX and money market guide: China debt market guide: SHIBOR rates: Reports on central bank open market operations: New Chinese debt issues: Prices for central bank bills, treasury bonds and sovereign bonds: Overview of China financial market data: ($1 = 6.6401 Chinese yuan)

<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Hot money flows Bank FX flows & reserves Bank RRR & FX reserves ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^> (Editing by Richard Borsuk)

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