China’s success in bringing down borrowing costs will face a major challenge this month, with data showing rates rose every June over the past decade. What will make it worse this time are the biggest share sales in five years.
The seven-day repurchase rate recorded the largest or second-largest monthly increase in June of each of the last four years, the attached chart shows. The benchmark gauge of interbank funding availability will average 2.5 percent this month, according to the median estimate in a May 29 Bloomberg survey of five analysts and traders. That’s 44 basis points higher than May’s 2.06 percent.
The People’s Bank of China allowed the repo rate to surge to a record 10.77 percent in June 2013, rattling financial markets as banks grabbed cash for quarter-end loan-to-deposit ratio checks amid a crackdown on off-balance-sheet financing. New share sales will lock up 4.9 trillion yuan ($790 billion) this week, 60 percent more than in previous rounds, according to a Bloomberg survey of six analysts.
“IPOs and seasonal factors will probably send ripples through the market, driving rates higher,” said Li Liuyang, Shanghai-based chief financial market analyst at Bank of Tokyo-Mitsubishi UFJ (China) Ltd. “That will offer an opportunity for the PBOC to show where it wants rates to be at.”
The Shanghai Composite Index equities benchmark more than doubled in the past year to reach the highest level since 2008 last week, spurring a record amount of outstanding margin debt. Twenty-three companies, including China National Nuclear Power Co., are planning new share sales.
APAC Financial Markets • #CashCrunch, #China, #Equities, #IPO, #PBOC, #RepoRate #MarketNews
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