Halister News

(Bloomberg) -- PBOC’s resumption of 14-day reverse repo sales doesn’t signal monetary policy is tightening, and probably won’t impact bond yields, Haitong Securities bond analyst Jiang Chao writes in a note today.

• PBOC’s funding is still cheaper than market price, as the 14-day reverse repo is sold at 2.4% in auction, unchanged from the last offer in Feb and lower than market rate at 2.7%
  • NOTE: PBOC injects 50b yuan through 14-day reverse repo at 2.4% and 90b yuan via 7-day repo at 2.25% yesterday. It will inject 80b yuan using 14-day reverse repo and 140b yuan via 7-day reverse repos today, according to two traders at primary dealers required to bid at the auctions
• PBOC is expanding liquidity as it hasn’t issued new three- year central bank bills when the old bills matured recently: Jiang
• Interest rate and RRR cuts are unlikely in near term, because the authorities are seeking to curb property bubble
  • CPI tends to rebound toward year-end on low-base effect and rising food, oil prices
  • Economic growth stabilizes in July and August, indicating no urgency for easing
• Bond yields are unlikely to decline given PBOC didn’t lower repo rate in auction; 7-day repo rate has been the floor of benchmark 10-yr bond yield in the past 15 yrs
• Bond yields are also unlikely to rebound significantly either; sees 10-yr yield to trade around 2.7% and fluctuate within 2.5%-2.9% in the next three months
  • Expects 10-yr govt bond yield to decline to ~2% in 2017
• NOTE: Yield of 2.9% govt bond due May 2026 little changed at 2.76%
  • 7-day repo rate rose 10 bps to 2.4988% yday