China steps up cash injections amid IPO restart

Shanghai - China’s central bank stepped up cash injections via open-market operations as a resumption of new share sales drove demand for funds.

The People’s Bank of China auctioned 50bn yuan of seven-day reverse-repurchase agreements on Tuesday, more than the total of 30bn yuan last week. Twenty-eight initial public offerings, including 10 this week, will lock up 3.4trn yuan of funds, according to a Bloomberg survey. Subscriptions that started on Monday drove the overnight money rate to the highest level in a month.

“This is a preemptive measure by the central bank to ensure liquidity is ample during the IPOs,” said Wan Zhao, a Shanghai- based analyst at China Merchants Bank. “The money market tightened slightly yesterday, and the PBOC wants to maintain the stability.”

The one-day repurchase rate, a gauge of interbank funding availability, fell one basis point to 1.77% as of 10:42, according to the National Interbank Funding Center prices. The overnight repo rate traded on the Shanghai Stock Exchange jumped 186 basis points, the most since November 6, to 2.39%.

The real challenge comes on Wednesday, when institutions need to borrow a lot of money to deposit funds, and then the liquidity crunch will ease on Friday, Frank Sun, a Shanghai- based analyst at CFETS-ICAP International Money Broking, wrote in a note on Monday.

The yield on the government bonds due October 2025 rose one basis point to 3.06%, according to data from the National Interbank Funding Center.