SHANGHAI: China's money rates jumped on Friday, with liquidity hit in recent days by demand for funds including a subscription for an initial public offering and a maturing of a reverse repo.
Dealers said tighter conditions had caused the central bank to extend the duration of trading on Thursday to meet the requirements for funds by some institutions.
China Communications Construction Co Ltd, the country's largest builder of ports, froze more than 170 billion yuan ($26.98 billion) in funds from the market Unsuccessful subscriptions will be returned from Monday, after the IPO closes, meaning liquidity in the money market may ease a bit next week.
"These are still the reasons for tighter liquidity, but we can see the sentiment to lend money is very weak now," said a dealer at a Chinese bank in Shenzhen. "Next week's funding may improve as the money for IPO will be returned."
Rumours swirled in the market that the central bank could conduct reverse repos again. "No matter if it's a rumour or not, market liquidity really needs help now," said a dealer at Chinese bank in Shanghai.
Dealers noted that the central bank lengthened the trading period on Thursday to meet funding requirements of institutions. The benchmark weighted-average seven-day bond repurchase rate rose 88.05 basis points to 5.2455 percent from 4.3650 percent at the close on Thursday.
The 14-day repo rate rose to 5.6901 percent from 5.0443 percent, and the shortest overnight one-day repo rate gained to 4.6683 percent from 3.6094 percent.
In the bond market, interest rate swaps (IRS) rose slightly in the morning session, but later fell back on rumours of reverse repos. One-year IRS was at 3.36 percent, unchanged from Thursday's close, while the benchmark five-year IRS dipped to 3.39 percent from 3.40 percent.
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