SINGAPORE, June 3 (Reuters) – China’s benchmark repo rate eased slightly on Thursday as central bank operations improved onshore liquidity while Singapore’s interbank rates dropped further, aided by falling currency forwards and cash injections by the authorities.
Interbank swap offered rates in Singapore SGDDFIX=ABSG have been falling consistently every day for the past week, taking the 3-month rate down 14 basis points to 0.40 on Thursday. These rates are implied yields derived from Singapore dollar forwards.
Analysts said that had resulted from an improvement in onshore cash availability and a move in U.S. dollar forwards, the latter possibly owing to receiving of U.S. dollar forwards by the Monetary Authority of Singapore (MAS).
“I guess it’s just the fact that the MAS has been giving out a lot of liquidity, receiving U.S. dollars, and the situation in Europe seems to be taking a breather,” a Singapore trader said.
Liquidity also seemed to be ample in dollar funding markets, judging by the responses at the European Central Bank’s funding operations for banks and the feeble demand for dollar funding at dollar swap lines the U.S. Federal Reserve has reinstated with other central banks.
Yet the dollar LIBOR-OIS spread — the spread between interbank rates and expectations of policy yields — continued to widen, pointing to difficulty in obtaining dollar cash at least for some players.
In Singapore, 3-month dollars SIUSDD=ABSG were quoted at an average 0.539 percent, continuing to trend lower bit by bit from last week’s peak at 0.54667 percent.
The spread between LIBOR LIBOR= and overnight-indexed swaps (OIS) was 34 bps, its widest in 11 months.
Most analysts however agreed that the problem was not one of availability of cash, rather it was the solvency of a few European banks.
“European banks are facing those penalty rates because of market uncertainty about their financial condition and doubt about the ability of their respective sovereign governments to live up to their guarantee commitments,” Bob Eisenbeis, Chief Monetary Economist at Cumberland Advisers wrote to clients.
In China, the benchmark 7-day repo rate dipped after steadily climbing for more than two weeks in anticipation of an improvement in the tight money markets.
Other yields rose, including that at a central bank auction of three-month bills, as banks continued to feel the crunch from brokerages and mutual funds setting aside money for Wednesday’s 40 billion yuan convertible bond issue by Bank of China (601988.SS)(3988.HK).
Those subscriptions are locked up until June 7. Moreover, there is a pipeline of equity and rights issues by other Chinese lenders.
The central bank managed to sell 110 billion yuan ($16 billion) of three-year bills at a lower yield of 2.68 percent compared with 2.70 percent at the last auction.
But the yield on its 5 billion yuan three-month bills rose more than 4 basis points from last week’s auction to 1.53 percent, up for a third week in a row, as the PBOC has struggled to attract demand for shorter tenors. [ID:nTOE65202O]
The 7-day bond repurchase rate CN7DRP=CFXS fell more than 12 bps to 3.1526 percent, remaining at a high level but hinting at a gradual easing of pressure in the money market as the central bank intervenes to manage the liquidity.
The People’s Bank of China has refrained from conducting short-term bond repos for three weeks in a row, and has cut back on the one-year and three-month bills it has issued.
This week, it has injected a net 14 billion yuan, far lower than the 145 billion yuan last week but a sharp contrast with its aggressive draining of funds and raises in banks’ required reserves in the first few months of the year. (Reporting by Vidya Ranganathan; Editing by Jan Dahinten)
