China injects most cash in 2 months; 10-year yields at lowest in 18 months

The yield on China’s 10-year sovereign bonds declined to the lowest level since June 2020, as interbank borrowing costs fell after the central bank boosted short-term liquidity.

China’s 10-year government bond yield fell two basis points to 2.795 per cent as of 4:40 pm in Shanghai. On Tuesday, The People’s Bank of China boosted its injection of short-term liquidity into the financial system to 190 billion yuan ($29.8 billion), the most in two months. 

The PBOC’s operation came after an indicator for short-term borrowing costs soared the most in a year on Monday, a sign of liquidity shortages in the interbank market. The supply of cash tends to tighten toward the end of the year, as banks hoard cash to prepare for regulatory checks. 

“The big amount of injection will help to alleviate liquidity pressure,” said Zhaopeng Xing, senior strategist at Australia & New Zealand  Banking Group. “It is necessary to help the financial institutions to move cross the year-end smoothly.”

Earlier this month, the PBOC reduced the reserve-requirement ratio in an effort to keep cash supply ample and support the nation’s economic recovery from the pandemic. In its quarterly meeting, PBOC pledged to use monetary policy tools more “proactively” to support growth. 

The seven-day repo rate fell 13 basis points to 2.29 per cent as of 5:07 p.m. local time, after soaring 52 basis points on Monday.