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NDIRS up as central bank hikes bill yields
(China Daily/Agencies)
Updated: 2010-01-08 08:06
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China's central bank surprised the market yesterday by raising the auction yield of its three-month bills for the first time since mid-August, and the significant step-up in liquidity tightening sent offshore non-deliverable interest rate swaps (NDIRS) sharply higher.
The People's Bank of China (PBOC) is also set to drain a net 137 billion yuan ($20.07 billion) from the market this week, the biggest weekly drain in 11 weeks, as it intensifies the pace of quantitative tightening to curb excessive market liquidity.
"Both the hike of the auction yield and heavy drain were unexpected as the market had thought that the central bank would at least be lenient ahead of the Spring Festival," said money market analyst Liu Junyu at China Merchants Bank in Shenzhen.
The Spring Festival, or Lunar New Year, falls in mid-February this year. The weeks leading up to the major week-long holiday are typically a time of heavy spending by the Chinese, resulting in tight liquidity.
Traders said the PBOC's move appears to be aimed at banks, warning that it would not tolerate excessive lending in the early months of 2010 like the banks did in the same period of 2009.
"The market talk is that some banks intend to lend some 50 percent of their planned new loans for 2010 in the first quarter so as to offset the impact of possible monetary tightening later in the year," said a senior dealer at a State-owned bank in Shanghai.
The PBOC yesterday auctioned 60 billion yuan of three-month bills at a yield of 1.3684 percent, up 4.04 basis points from 1.3280 percent last week and the level that it had kept over the past four months.
That sent offshore NDIRS up across the curve in the morning, with the one-year NDIRS rising 12 basis points to 2.19 percent at midday from Wednesday's close and the 10-year NDIRS also rising 12 basis points to 4.37 percent.
