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19 Jun 2013
Flash: PBOC raising the roof - BBH
FXstreet.com (London) - Brown Brother Harriman Global Currency Strategy Team say that while all eyes are on the Federal Reserve today as the market awaits clues into when the central bank will begin slowing its liquidity provisions, China's central bank continues its own snugging operation, keeping the money market rates at lofty levels.
They said that rather than inject liquidity into the money markets, as the banks were clamouring for, the PBOC drained CNY2 bln yesterday, which continued the cash crunch and ensured that today's 10-year bond auction would see lukewarm demand. Sure enough, as they note, today's CNY30 bln 10-year bond offering saw its lowest bid-cover ratio in a year while the 7-day repo rate, which is an indicator of interbank liquidity rose 144 bp today to 8.26%, which is the highest rate since in two years.
They said that rather than inject liquidity into the money markets, as the banks were clamouring for, the PBOC drained CNY2 bln yesterday, which continued the cash crunch and ensured that today's 10-year bond auction would see lukewarm demand. Sure enough, as they note, today's CNY30 bln 10-year bond offering saw its lowest bid-cover ratio in a year while the 7-day repo rate, which is an indicator of interbank liquidity rose 144 bp today to 8.26%, which is the highest rate since in two years.