China’s overnight rate rises as bill sales seen curbing cash

Three-month bills being sold again

China’s overnight money-market rate rose for a second day on speculation the central bank’s resumption of bill sales will curb the supply of cash in the financial system.

The People’s Bank of China sold 10 billion yuan ($1.6 billion) of three-month bills at a yield of 2.91 percent yesterday, the first issue of such securities since December 2011, according to a statement on its website. Prior to that, the monetary authority has only used 28- or 91-day repurchase contracts to drain capital since February.

The one-day repurchase rate, which measures interbank funding availability, rose three basis points to 2.14 percent, according to a weighted average rate compiled by the National Interbank Funding Center. It fell 85 basis points this week. The seven-day repurchase rate touched a two-week high of 4 percent today before dropping 13 basis points to 2.98 percent.

“Liquidity won’t be overly loose any more,” said Song Qiuhong, a bond analyst at Foshan Shunde Rural Commercial Bank Co. in Foshan, a city in the southern province of Guangdong. “The seven-day repo may stay above 3.3 percent most of the time this quarter.”

New home prices jumped 5.3 percent from a year earlier in April, defying government efforts to cool the property market, according to SouFun Holdings Ltd., which owns the country’s biggest real-estate website. The consumer price index rose 2.4 percent last month, the most this year, official data show, while the yuan touched a 19-year high yesterday. China is tightening monetary policy even as benchmark interest rates were cut this month in South Korea, Australia, Europe and India.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, was unchanged at 3.27 percent, according to data compiled by Bloomberg. The rate climbed six basis points, or 0.06 percentage point, this week.

Bloomberg News

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