Money

China IRS rates at 19-mth peak Thursday

(Agencies)
Updated: 2010-06-25 11:29

HONG KONG - One-year Chinese interest rate swaps (IRS) settled near 17-month highs on Thursday driven by a liquidity squeeze in the money market due to AgBank's share offering and as banks prepare for regular checks by authorities.

Banks are bolstering their books ahead of semi-annual checks of loan-to-deposit ratios by the end of June and before Agbank's IPO starts taking subscriptions from July 1 which is expected to drain up to 2 trillion yuan ($294 billion).

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By afternoon, the one-year Chinese IRS rate was at 2.67 percent, a whisker away from Wednesday's peak of 2.70 percent, its highest since November 2008. It is up 5 bps so far this week.

"Yields are rising because money market liquidity is really tight before AgBank's IPO and as banks prepare funds for ratio checks at the end of June," said a trader at a domestic bank in eastern China.

Reflecting the tight liquidity, the weighted average seven-day repo rate rebounded to a three-week high of 2.8800 after falling to 2.6959 in the previous session.

Traders worry that even after AgBank's IPO, more big bank and corporate fundraisings may be launched, pressuring the seven-day repo higher.