SHANGHAI: China's benchmark money market rate rose sharply on Monday, driven by temporary year-end factors, while overall market liquidity remains plentiful, traders said.
The benchmark weighted average seven-day bond repurchase rate jumped 40 basis points to 4.1382 percent at midday.
But the rate for 14-day repos, which saw the sharpest rise last week, fell markedly, dropping 30 basis points to 5.1463 percent.
Such opposing movements reinforce the view of traders, which is that the current elevated levels for the 7-, 14-, and 21-day repo rates reflect traditional year-end tightness, rather than a structural shortage of funds in the market.
"The seven-day rate, at least, will definitely fall back" after the Jan. 1 holiday," said a trader at a major Chinese state-owned bank in Beijing.
The 14-day rate rose sharply last week, when the 14-day period included was centered squarely around December 31, the period when corporate and household demand for cash is expected to peak.
Monday's jump in the seven-day rate reflects elevated liquidity demand from banks for this same period. A seven-day repo loan made on Monday would mature on Jan. 2.
By contrast, the overnight rate edged up 6 basis points but remains low at 3.0014 percent.
Traders believe that rates affected by the year-end squeeze will fall back following the Jan. 1 holiday.
"As for the 14-day, since Spring Festival is coming up quickly, it will increase again quickly," said the trader, referring to the Lunar New Year holiday, which begins on Jan. 21.
Meanwhile, the bond market has been insulated from the increase in short-term money rates. With many traders on vacation, volumes have been light.
"Everyone says this is a short-term effect. People know that cross-year liquidity is always tight for these few days, so it has not had much of an influence on bond yields," said a bond trader at a foreign bank in Shanghai.
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