SHANGHAI: China's money market rates rebounded on Wednesday as banks held cash to settle quarter- and month-end needs and the market worried about central bank tightening in April.
Liquidity conditions tightened as banks kept more cash on hand to square funding needs at the end of the month and the quarter and before a short holiday that will close markets on Monday and Tuesday.
"The 7-day repo is higher today because of the month-end and quarter-end demand, but the rate was unusually low yesterday and we're seeing it return to a more normal level today," said a trader at a Chinese state-owned bank in Shanghai.
China's benchmark money market rate, the weighted average seven-day bond repurchase rate , jumped 50 basis points to 2.6340 percent at midday from 2.1321 at Tuesday's close, while the longest traded three-month repo rate slipped to 3.7100 percent from 3.7159 percent.
"The 7-day repo may stay elevated after the holiday, because there are still lots of central bank bills maturing in April and the market may be expecting more PBOC rate hikes," the trader said.
The central bank is set to conduct a net drain of 68 billion yuan from the financial system this week, even before conducting its regular weekly bill auction and repurchase agreements on Thursday.
The official China Securities News said Wednesday that the central bank may implement monetary tightening policies in April due to large amounts of maturing bills and concerns over inflation.
China Development Bank auctioned 15 billion yuan ($2.3 billion) of 10-year fixed-rate bonds in the interbank market on Wednesday at a yield of 4.50 percent, at the high end of market expectations.
Chinese interest rate swaps were largely stable on Wednesday, with the benchmark onshore five-year IRS up 5 bps at 4.01 percent at midday, while the offshore five-year non-deliverable IRS rose 5 basis points.
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