China’s money rates mixed, ample liquidity tempers weekly net drain

China’s primary money rates were mixed for the week on Friday as ample liquidity offset a central bank-led net drain from the financial system, traders said.

The People’s Bank of China (PBOC) drained a net 173.5 billion yuan from the market through open market operations this week, compared with a net injection of 310 billion yuan a week earlier.

“The central bank wants to keep liquidity at an appropriate level, and it makes sense to drain some money when there are few signs of stress,” said a Shanghai-based trader at a domestic commercial bank.

China’s central bank injected cash into money markets through 14-day reverse repo agreements for the first time since February last week and continued its injections through the same tenor this week. Traders took this as a signal of the PBOC’s discomfort over the rising tide of short-term borrowing moving to the bond market.

Prior to last week, for much of this year the PBOC has consistently used the seven-day reverse repo agreements to inject cash into the financial system.

The longer tenor, along with higher interest rates, would raise the borrowing costs while simultaneously lowering leverage.

“The central bank is clearly signaling that it does not want to create bubble in the bond market and the previously overheated housing market,” the trader said, noting the reduced chance of the PBOC easing its monetary policy in the near term.

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 2.2937 percent, 7.7 basis points lower from the previous week’s closing average rate.

However, the 14-day rate of the repo inched down from last Friday, while the overnight rate edged higher compared with a week earlier.

The Shanghai Interbank Offered Rate (SHIBOR) for seven-day tenor rose to 2.3690 percent, 0.7 basis point higher from the previous week’s close.

The one-day or overnight rate stood at 2.0561 percent and the 14-day repo stood at 2.4015 percent.

The spread of the five-year credit default swap rate on Chinese sovereign debt rose 0.75 percent at 100.