SHANGHAI: Year-end factors pushed short-term rates in China's money market towards a one-month high on Tuesday, but rates will likely peak later this week, traders say.
The benchmark weighted average seven-day bond repurchase rate rose 25 basis points to 4.4355 percent at midday, just shy of its recent high of 4.4138 percent on Nov. 22, before the central bank announced a cut in the required reserve ratio on November 30.
The 14-day repo, which rose 195 bps last week before falling back on Monday, resumed its rise, jumping 30 bps.
Despite the rise in rates, liquidity remains ample, traders say.
Six-month interest-rate swaps, which reflect expectations for the seven-day repo rate over the next 3-6 months, rose 15 bps 3.0200 percent, but remains near their 2011 low of 2.8000 percent.
As for the surging seven- and 14-day rates, they will likely peak this week and begin to decline on Dec. 30, traders say.
As liquidity demand is highest for the days immediately surrounding Jan. 1, demand for 14-day repos has already begun to wane.
"The 14-day is no longer mainstream," said a trader at a city commercial bank in Shanghai.
Low volume or unusual collateral posted by a particularly desperate borrower may explain the volatility in the rate over the last two days, he added.
For its part, the central bank appears to be taking steps to accommodate the year-end demand for funds. This week may see a net liquidity injection by the central bank after four consecutive weeks of net drain.
The central bank refrained from draining funds from the banking system via 28-day repos on Tuesday morning and issued only 4 billion yuan in fresh one-year bills, against 13 billion in bills and repos due to mature this week.
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