RETAIL BANKING | Tony Chua, China

China's central bank to enhance short-term bills release

The PBOC may defer its issuance of three-year central bank bills in its open market operations this week as it didn't ask lenders to report for the product’s demand.

China's central bank may rely more on sales of short-term notes and repo bills in the short run amid tight market liquidity and the Chinese government places concerns that further interest rate hikes could hobble the world's second-largest economy.

The People's Bank of China, the central bank, sold RMB 2 billion worth ($308.58 million) of one-year bills on Tuesday at a yield of 3.3058%, unchanged for the ninth week, easing market fears of an imminent rate hike as the coupon rate of one-year bills is usually regarded as a signal of change in interest rates.

Meanwhile, the central bank auctioned RMB 100 billion ($15.43 billion) worth of 28-day repurchase agreements (repos) on Tuesday, the highest volume since April 12. The yield was set at 2.6%, also unchanged for the ninth week.

"Liquidity squeeze will ease further this month and the decline in funds outstanding for foreign exchange will delay further hikes in banks' reserve requirement ratio (RRR), and the central bank will tend to boost the size of short-term securities such as 28-day repos and three-month bills to lay up capital on the market and put off some maturing notes this month to July," an analyst at Guosen Securities told the 21st Century Business Herald.

"Money market yields would greatly rebound from lower levels in March, i.e., a yield of 1.99% for one-week interbank borrowing, to 2.5%,” he said.

View the full story in 21st Century Business Herald.

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