* China braces for massive bills, repo redemptions
* South Korea swaps extend fall
By Umesh Desai
HONG KONG, March 4 (Reuters) - China repo and overnightrates fell on Thursday ahead of bills and repos worth hundredsof billions of yuan maturing with dovish central bank remarksalso lowering longer term yields.
A massive 776 billion yuan ($114 billion) of bills andrepos will mature in March. This comes on the back of a net 222billion yuan central bank injection via open market operationsin February to ease a funding squeeze ahead of last week"sLunar New Year holiday.
On Thursday, the 7-day repo rate CN7DRP=CFXS fell to1.6879 percent from 1.7655 percent and the 7-day overnight rateSHICNYSWD= eased 6 bps to 1.6783 percent.
"Bill issuance late last year indicated mopping up butyear-to-date the open market operations have pumped inliquidity," said Zhi Ming Zhang, an HSBC analyst in Hong Kong.
"Also, liquidity is shifting in terms of asset allocationto fixed income instruments. Money that went to risky assetslike stock markets and property is coming back."
Meanwhile, bond yields fell across the curve after a deputycentral bank governor said China can prevent inflation fromspinning out of control this year and is confident ofcontaining inflation expectations.
The indicative five-year government bond yield CN5YTFIX=Rfell to a fresh five-month low of 2.8709 percent bid from2.8736 percent on Wednesday.
Bond yields have been dropping steadily in recent weeksbecause of easing concerns over near-term inflation risks andmonetary policy tightening.
"Couple of things are going on here -- they are talkingtough and at the same time they are still fine tuning. Theydon"t want to overdo it in the housing sector as propertyprices are important in underpinning domestic consumption."
But he added fine tuning would continue but these moveswill not be drastic.
This was reflected maturing in the next six months or lesson expectations the central bank will absorb excess liquidityvia open market operations or through higher banks" reserveratios.
In South Korea, swaps fell and bond futures rose on markettalk a former finance minister, believed to have dovishinterest rate views, would take over as the next central bankgovernor.
Former finance minister Kang Man-soo was later quoted asdenying the market talk.
Two year swaps KRQMCD2Y=KMBC fell 2 bps to 3.73 percentand the 5-year contract KRQMCD5Y=KMBC eased 5 bps to 4.18percent. The March contract on 3-year treasury bond futuresKTBc1 rose 3 ticks to 110.79.
Financial markets are increasingly expecting lessaggressive monetary policy moves in South Korea as data showedAsia"s fourth-largest economy is losing steam.
The Bank of Korea next reviews its interest rate policy onMarch 11, the last monthly meeting for Governor Lee Seong-taebefore he leaves office.
In February, the central bank kept the 7-day repurchaseagreement rate KROCRT=ECI on hold at a record low of 2.00percent for a 12th consecutive month.
At that meeting some central bank board members called fortimely exit strategies to head off property bubbles and curbinflationary pressures, but the government has repeatedlyexpressed its opposition to an early interest rate increase. (Editing by Jan Dahinten)
Currencies
No comments:
Post a Comment