Political Metals

Ben Bernanke has got some catching up to do. While his latest  ”QEternity” is pumping $40 billion per month into the banking system, China’s central bank just announced injection of  290 billion yuan ($46 billion) in one day! Notwithstanding, I’ve not yet painted the nation red on this Race to Debase map, as this is a short term liquidity injection through reverse repos. Nevertheless, it’s a noteworthy development, highlighting how fragile their financial system is - not being able to stand on its own through a weeklong holiday without a massive shot in the arm, albeit a temporary one. Full report follows:-

-

China’s Central Bank Injects Record Funds to Ease Crunch

By Judy Chen | Bloomberg

China’s central bank added a record 290 billion yuan ($46 billion) to the financial system using reverse-repurchase agreements, seeking to address a cash squeeze in the run-up to a weeklong holiday.

The People’s Bank of China conducted 190 billion yuan of 28-day reverse repos and offered 100 billion yuan of 14-day contracts, according to a trader at a primary dealer required to bid at the auctions. Today’s total is the highest for a single day in Bloomberg data going back to 2004.

“Record amounts of reverse repos are to meet the surge in cash demand before the quarter-end and the holidays,” said Liu Junyu, a bond analyst in Shenzhen at China Merchants Bank Co., the nation’s sixth-biggest lender. “As the central bank steps up adding funds through reverse repos, it’s unlikely to cut the reserve ratio this month.”

The seven-day repurchase rate, which measures interbank funding availability, gained 19 basis points to 4.70 percent as of 4:30 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. It touched 4.75 percent, the highest level since June 28.

The central bank kept the yields on 28- and 14-day reverse repos unchanged at 3.6 percent and 3.45 percent, respectively, the trader said. China’s financial markets will be shut from Oct. 1 to Oct. 5 for the National day and mid-autumn holidays.

Reserve Cuts

China’s monetary authority also auctioned 40 billion yuan of six-month treasury deposits to commercial banks on behalf of the Ministry of Finance at a yield of 4.32 percent, according to a different trader. That compared with yesterday’s six-month Shanghai interbank offered rate of 4.09 percent.

The PBOC lowered the amount of cash lenders must set aside as reserves in May to 20 percent, the second reduction this year.

China’s one-year interest-rate swap, the fixed cost needed to receive the floating seven-day repo rate, declined seven basis points, or 0.07 percentage point, to 3.18 percent, according to data compiled by Bloomberg.

The yield on the 2.95 percent government bonds due August 2017 dropped five basis points to 3.23 percent, data from the Interbank Funding Center shows.