Halister News

(Bloomberg) -- China’s money market curve is flattening, as injections by PBOC prompt investors to borrow more through 14-day funding rather than seek overnight cash, according to Standard Chartered.

• The 14-day funding cost has declined after PBOC anchored the repo rate lower via its recent daily reverse repo sales, prompting bond investors to shift to the longer financing cycle, Standard Chartered senior Asia rates strategist Becky Liu says
  • This gives more certainty in funding cost and “safer” positions in the bond markets
  • ~30 bps spread between 1-day and 14-day funding is “reasonable,” compared with the spread of more than 60 bps earlier
  • NOTE: After PBOC resumed selling 14-day reverse repo on Aug. 24, first time since Feb., the repo rate has fallen to 2.4429% today, from the six-month average of ~2.7%. 1-day repo rate has risen to 2.0683% today from the six- month average of ~1.99%
• Lenders are less motivated to lend overnight money since they can lend 14-day with a higher premium: Liu
• PBOC would probably use 7-day and 14-day reverse repo rates together as policy rates in the future, and it may manage overnight liquidity via passive tools such as SLF (standing lending facility) when there is sudden liquidity squeeze
  • The Chinese central bank probably won’t sell 1-day reverse repo as that would be too much intervention
• Bond market is still digesting PBOC’s recent move
  • Long-end of yield curve still depends on macro data; expects RRR cut in 2H, but only when the currency mkt stabilizes
• NOTE: Yield of 2.9% China govt bond due May 2026 rises 1 bp to 2.780% today