REPORT ON THE INTERBANK LENDING & BOND SYSTEM IN JANUARY 2004

Rrading volumes plunged and interest rates followed a reversed V- shape

In the 18 trading days in January 2004, the national interbank market recorded 4,319 deals with a turnover of 1.089 trillion yuan. Turnovers for deposit, bond repo and bond transaction were 146.936 billion, 732.556 billion, and 209.719 billion yuan respectively. Their daily trading volumes dropped by 27.54 per cent, 17.04 per cent and 25.14 per cent as compared with the previous month. In the week before the Spring Festival, the fund supply changed from loose to tight, and therefore market rates shot up. The rates for deposit and repo both climbed by more than 100 bps within just three trading days. However, the interest rates retreated from high points right after the Spring Festival.

Lending rates climbed and dropped

In January, the deposit market concluded 654 deals with a turnover of 164.936 billion yuan. The average daily turnover stood at 9.163 billion yuan, up 31.20 per cent year-on-year but decreasing 27.54 per cent than the previous month. With the effect from the rising demand before the Spring Festival, deposit rates began to soar from January 16. The weighted average deposit rate reached 3.48 within only three trading days, up more than 130 bps. After that, deposit rates eased quickly, and ended the month at 2.55 per cent.

Among the eight tracked varieties of deposit, IBO021 was very active, up 23.15 per cent and 233.53 per cent respectively over the same period of last year and the previous month. The deals and turnover for overnight deposit were 37.18 per cent and 69.50 per cent less than the previous month. The shrinking short-term varieties and rising mid-term varieties indicate the remarkable seasonal demand for funds.

Repo rates fluctuated with rebound in the deal of some varieties

In January, 2,398 repo deals were concluded in the interbank market with a turnover of 732.556 billion yuan. The average daily volume increased by 28.32 per cent year-on-year to 40.698 billion yuan, 17.04 per cent lower than the previous month. Driven by the increasing demand for funds before the Spring Festival, the weighted average repo rate started to rally on January 16, and hit 3.30 on January 19, up 115 bps. After that, repo rates stabilized at high points temporarily and retreated quickly to a month-close of 2.78. Repo rates for various maturities all had hefty gains.

Among the 11 tracked bonds repos, seven were traded in January. R014, R021 and R1M stopped shrinking in deals for months in a row, and rebounded by 14.35 per cent, 269.24 per cent and 178.61 per cent respectively E`P than the previous month. Short-term varieties dropped in deals. The deals for 1-day and 7-day repo fell by 41.19 per cent and 33.59 per cent. Figures show that the seasonal shortage of fund aggravated market membersÕEXP preference for certain repo varieties.

Bond market pushed downward

In the 18 trading days of January, the bond market recorded 1,267 deals, valued at 209.719 billion yuan. The average daily volume was 11.651 billion yuan, up 360.09 per cent year-on-year, but down 25.14 per cent over the previous month. No trade occurred on January 19. The highest daily turnover of 24.779 billion yuan happened on January 15. Commercial banks were major sellers, indicating fund tightness before the Spring Festival. Influenced by fluctuations in market rates, the interbank T-bond index stumbled in the latter half of January, closing the month at 1149.04.

126 bonds were traded in the interbank market during the month, including 38 T-bonds, 59 financial bonds, and 25 central bank papers. Among them, the four central bank papers issued this month and some CDB bonds outperformed the market with the number of deals leading other varieties.

Changes in institutional financing

As compared with December 2003, lending of state-owned and joint stock banks dropped over 30 per cent in January, and their borrowing rose to 269.203 billion yuan with a marked growth in net borrowing. This is a considerable change from the financing structure in previous months. City commercial banks also lowered lending to certain extent. The demand for liquidity payments before the Spring Festival of financial institutions such as commercial banks increased obviously.

As for lending, policy banks ranked first with a ten-fold month-on-month rise and lending volume exceeding four billion yuan. Besides, foreign-funded funds and foreign-funded banks also added to their lending remarkably. Such a flow of funds is natural, considering that the difference in the nature of financial institutions determines the difference in seasonal demands for funds.