CNY Swaps: Good 5y offers; 2y bid emerges; PBOC keeps rates unchanged

PBOC
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CNY NDIRS has been offered although light paying in 2y emerged after mid-day. The PBOC has kept rates unchanged despite property crisis.

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  • Fixings stays low; GDP disappoints; PBOC keeps rates unchanged

  • Good 5y offers flatten 1s/5s NDIRS

  • 2y bid emerges after lunch break

 

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Fixings stays low; GDP disappoints; PBOC keeps rates unchanged

The PBOC has maintained liquidity in the banking system by injecting CNY3bn via selling 7-day reverse repos at 2.1% to match maturities. Fixings therefore stays unchanged at 1.6% today, after hitting its recent low of 1.57% late last week.

 

Lower fixings, together with weak domestic data over the past few sessions, continues to back better receiving interest along the CNY NIDRS curve, despite the central banking leaving key interest rate unchanged.

 

Recent official data showed that GDP in China was down 2.6% quarter-on-quarter in the second quarter, compared to 1.3% of growth in the first quarter.

 

On Wednesday, the PBOC decided not to alter the 1- and 5-year loan prime rates, leaving them unchanged at 3.7% and 4.45% respectively. Market participants said the central bank was unwilling to make a move before a clearer assessment of the recovery in the economy following the lockdown in key cities in China. It was also watching the pace of US interest rate hike especially until next week when the US Fed will meet again.

 

 

Good 5y offers flatten 1s/5s NDIRS

Dealers reported good receiving in 5-year NDIRS since market open. It traded mostly between 2.43% and 2.44% on the day, down from those traded up to above 2.5% on Wednesday.

 

1s/5s NDIRS flattened out by 0.5bps to 41.5bps, as the front-end has also been offered despite weakness in the currency.

 

CNY was fixed weaker against USD at 6.762 today, a step closer than recent high of 6.7898 in mid-May. The weakness in the currency has been driven by worries over the economy in China following the property crisis there.

 

Homebuyers and contractors to the property industry in China are refusing to repay mortgages and bank loans, as developers such as China Evergrande Group fails to deliver, and still has massive payables to contractors. Authorities have urged banks to boost lending to builders to help complete the unfinished projects but sentiments remain weak, especially after China South City Holdings Ltd proposing changes to its USD1.6bn bonds including extending maturities and paying principal in installments.

 

 

2y bid emerges after lunch break

1-year NDIRS traded down to 2.015% intraday, down from those traded mostly around 2.05% on the previous day. 2-year NIDR traded at 2.135% in the morning session before light paying interest emerged after lunch break. It was last seen changing hands at 2.165%, up about 1.5bps from previous close.