China’s central bank moved to stabilize money supply Friday, capping a week that began with a bond rout and more than 1 trillion yuan ($151 billion) of loans due to mature. The People’s Bank of China offered 404 billion yuan of one-year funds under the Medium-Term Lending Facility, compared with 207 billion yuan of maturities, according to a statement on the monetary authority’s website. That takes total injections this week — through MLFs and reverse-repurchases agreements — to just over 1 trillion yuan, slightly exceeding the amount due. Friday’s MLFs were offered at 3.20 percent, unchanged from the previous operation.
China’s debt market has been through a tumultuous few days, with the benchmark 10-year yield surging to a three-year high on Monday amid concern policy makers would toughen a drive to reduce borrowing levels in the financial system. Recent comments from the PBOC governor signaling higher-than-expected economic growth and a slide in U.S. Treasuries exacerbated the pressure last week. “The market has been waiting for the PBOC to take a major action to reverse the pessimistic sentiment, and this big MLF injection is that action,” said Tommy Xie, an economist at Oversea-Chinese Banking Corp. in Singapore. “Concerns still outweigh the good news and sentiment is still fragile.”
The yield on 10-year sovereign notes rose one basis point to 3.89 percent in Shanghai on Friday, extending this week’s increase to five basis points. The yield had surged 20 basis points in the four days through Monday before central bank cash injections eased the pressure. “I don’t see a strong easing policy signal here” because the PBOC’s cash injections this week don’t exceed maturities all that much, said Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shenzhen. “The pressures for bonds and money market rates will remain in the coming two months as negative factors, such as the lack of easing and improvement in the economy, will persist.”