As the central bank, the People’s Bank of China (PBOC), injected a great deal of money into the market for three consecutive weeks, interbank capital supply is still loose despite the central bank withdrew 60 billion yuan from the market last week. In addition, the Ministry of Finance (MOF) conducted market dealing of one-year government bond. Therefore, interest rates of short-term capitals in various markets all fall. Statistics show that no matter yields of one-day and seven-day reverse repos, or interest rate for medium-term negotiable certificates of deposit (NCD), or yield of one-year government bond drops significantly.
Capital strain happened easily in June of previous years and macro-prudential assessment is also carried out at the mid-year. Thus, the PBOC injected tremendous currencies into the market for three consecutive weeks in June in a bid to prevent impact from liquidity strain. However, it acted out of normal behavior to withdraw 60 billion yuan from the market last week, which is the first time that it withdrew money from the market in recent one month.
It is widely believed by the market that the major reason for this move is worry over excessive liquidity. Nevertheless, interbank capital supply is still very loose and price of short-term funds moves down remarkably. According to statistics, weighted interest rate for all interbank reverse repos declined by 10 basis points to 2.98 percent. Interest rate for one-day and seven-day reverse repos saw a decrease of 14 basis points and 31 basis points to 2.81 percent and 3.08 percent respectively.
Banks further lowered interest rate for NCD. Last Friday, interest rates of one-month and three-month NCDs issued by national joint-stock banks both slipped by 28 basis points to 4.6 percent and 4.51 percent respectively, and those of six-month and one-year NCDs edged down by 17 basis points and 14 basis points to 4.58 percent and 4.60 percent respectively. Yield of government bond, particularly yield of one-year government bond, dropped greatly. Yields of one-year and 10 year government bond recorded 3.5489 percent and 3.5607 percent, down by 4.90 basis points and 0.73 basis points respectively from previous week.
Based on data above, as the PBOC withdraw 60 billion yuan and the liquidity remains ample, interest rates for short-term capital are on a downtrend. Benefiting from PBOC’s injection, the liquidity in the money and bond markets has improved remarkably, driving a pick-up in the stock and commodities markets.
Will the money supply remain loose as the first half of June? Most analysts doubt about it. “The PBOC started to withdraw money from the market last week, suggesting that its injection in June intends to ease the liquidity fluctuations at the end of the quarter. A wide loosening of money supply is difficult,” said Tang Yue, analyst with Industrial Securities.
The concern is a general attitude in the market. Since the beginning of this year, policies usually were introduced when the market was in good condition and the market sentiment was optimistic. But when the market was not in good condition and investors were pessimistic, policies were introduced slowly.
Zhang Xu, analyst with Everbright Securities, said that the more optimistic the market is, the stricter policies were introduced. Government bond yields will move up amid fluctuations in the third quarter. It is now at the lower level in its fluctuation range. Based on the current yields, the upward risk is much higher than downward risk.
However, some optimistic analysts believe that it should depend on the growth of social financing in the next half of this year as it is more needful to keep the real economy stable and increase financial support for the real economy in the process of financing deleveraging. The growth rate of M2 (broad money) in May was below 10 percent, much lower than the target set on two sessions the earlier this year. Social financing and credit growth might pick up in the next half. In general, the economy can move up easily, while treasury bond yields can hardly continue to grow at a high rate.
(Translated by Vanessa, Coral)
Capital strain happened easily in June of previous years and macro-prudential assessment is also carried out at the mid-year. Thus, the PBOC injected tremendous currencies into the market for three consecutive weeks in June in a bid to prevent impact from liquidity strain. However, it acted out of normal behavior to withdraw 60 billion yuan from the market last week, which is the first time that it withdrew money from the market in recent one month.
It is widely believed by the market that the major reason for this move is worry over excessive liquidity. Nevertheless, interbank capital supply is still very loose and price of short-term funds moves down remarkably. According to statistics, weighted interest rate for all interbank reverse repos declined by 10 basis points to 2.98 percent. Interest rate for one-day and seven-day reverse repos saw a decrease of 14 basis points and 31 basis points to 2.81 percent and 3.08 percent respectively.
Banks further lowered interest rate for NCD. Last Friday, interest rates of one-month and three-month NCDs issued by national joint-stock banks both slipped by 28 basis points to 4.6 percent and 4.51 percent respectively, and those of six-month and one-year NCDs edged down by 17 basis points and 14 basis points to 4.58 percent and 4.60 percent respectively. Yield of government bond, particularly yield of one-year government bond, dropped greatly. Yields of one-year and 10 year government bond recorded 3.5489 percent and 3.5607 percent, down by 4.90 basis points and 0.73 basis points respectively from previous week.
Based on data above, as the PBOC withdraw 60 billion yuan and the liquidity remains ample, interest rates for short-term capital are on a downtrend. Benefiting from PBOC’s injection, the liquidity in the money and bond markets has improved remarkably, driving a pick-up in the stock and commodities markets.
Will the money supply remain loose as the first half of June? Most analysts doubt about it. “The PBOC started to withdraw money from the market last week, suggesting that its injection in June intends to ease the liquidity fluctuations at the end of the quarter. A wide loosening of money supply is difficult,” said Tang Yue, analyst with Industrial Securities.
The concern is a general attitude in the market. Since the beginning of this year, policies usually were introduced when the market was in good condition and the market sentiment was optimistic. But when the market was not in good condition and investors were pessimistic, policies were introduced slowly.
Zhang Xu, analyst with Everbright Securities, said that the more optimistic the market is, the stricter policies were introduced. Government bond yields will move up amid fluctuations in the third quarter. It is now at the lower level in its fluctuation range. Based on the current yields, the upward risk is much higher than downward risk.
However, some optimistic analysts believe that it should depend on the growth of social financing in the next half of this year as it is more needful to keep the real economy stable and increase financial support for the real economy in the process of financing deleveraging. The growth rate of M2 (broad money) in May was below 10 percent, much lower than the target set on two sessions the earlier this year. Social financing and credit growth might pick up in the next half. In general, the economy can move up easily, while treasury bond yields can hardly continue to grow at a high rate.
(Translated by Vanessa, Coral)
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