EFFECTS OF OPEN MARKET OPERATIONS WERE SIGNIFICANT AND TURNOVER BEGAN TO DECREASE
Compared with July, the interbank lending market did not change significantly in August, with its turnover up 5.45 per cent. The daily average turnover fluctuated severely and increased towards the end of August. The daily weighted average rate mainly fluctuated between 2.000 and 2.100. Driven by the consecutive open market operations by the People's Bank of China (PBC) with the raising bidding rate, the lending rate also rose gradually. In comparison with the basically stable lending rate in July, the monthly weighted average rate in August increased by 0.69 per cent over last month.
Interbank funding continued to concentrate on short-term maturities in August, with an increasing turnover in overnight products, up 62.01 per cent over July. The turnover of short-term products within 20 days accounted for 94.16 per cent of the total turnover, among which the proportion of the overnight products rose from 14.12 per cent in July to 21.70 per cent in August, reflecting the obvious characteristic of funding maturities concentrating on short terms in the interbank market.
The repo rate surged and the daily average turnover plummeted after increasing
The central bank made four repo open market operations in August, among which the last three were all 28-day products, during which the bidding rate gradually rose from 1.96 to 1.99 and 2.05. The effect appeared immediately in the repo market. The daily weighted average repo rate, which had remained stable around 1.95, began to rise on August 19th and closed the month at its peak of 2.033. The quick climb of the repo rate impacted the liveliness of the market, and turnover during last two weeks decreased significantly.
The turnover of 7-day products decreased by 15.94 per cent in the repo market as compared with July. Influenced by the open market operations, the turnover of 21-day and 1-month products increased 45.16 per cent and 85.89 per cent respectively. Since the repo rate of 28-day products was raised by the central bank's open market operations, the weighted interest rates of middle and long-term products all went up, with 3-month and 6-month products up 4.55 per cent and 6.39 per cent respectively, which caused the yield curve of the repo market to resume its normal slanting shape.
Turnover in the bond market continued to decrease while bond price remained stable
Following the decreasing trend of July, the turnover of bond trading plummeted by 46.42 per cent over last month. Compared with the peak of RMB 72.9 billion yuan in June, the turnover had shrunk by almost 70 per cent and returned to its March level.
Since bond price decreased quickly in July, investors quitted the market temporarily and most long-term bonds lost liquidity in August. As long as bonds are not sold, the loss caused by the falling price does not appear in the book value. Therefore, the shrinking turnover prevent the price from declining further. If bond price does not recover in September, turnover is expected to decrease again.(by Chen Lifeng)