14-Day Repos A Quiet Deleveraging Push

Central bank finally shot! "A financial institution bond trader marvel. His first reaction was: going to bond the lever!

This is due August 23 China's central bank demand early consultation on the amount of reverse repurchase of 14 days. Sure enough, the next 24, 25, 26, the central bank for three consecutive days for 14 days of reverse repurchase transaction volume, respectively 50 billion, 80 billion, 50 billion, the successful rate of 2.4%. This is the first time in half a year, 14 days of operating tools are re-enabled, meaning that the central bank is expanding its short-term liquidity management efforts.

However, the market is no longer "calm." Shanghai Interbank Offered Rate (Shibor) overnight and 7-day products appear higher, August 25, overnight Shibor rose 0.001 percentage point to 2.044%; 7-day Shibor rose 0.002 percentage points to 2.364 percent.
The tightness in the market is seen as an intended result of PBoC policy, following the minutes of the Politburo meeting which included discussion of curbing bubbles:
At Guotai Junan Securities chief economist Lin Caiyi opinion, since the past six months, due to the pessimistic macroeconomic expectations, the market risk appetite, financial market assets again shortage, the market interest rate debt funds sought investment products, more and more capital inflows the bond market, bond market activity unprecedented leverage ratio has been unceasingly rising; data show that the currently overnight lending transactions accounted for more than 90%, resulting in excess liquidity the central bank worried about the bond market bubble, and thus resorted to 14 days as a reverse repurchase liquidity management tool.

It is worth mentioning that the recent Politburo meeting rare that "curb asset price bubbles," including the Commission began to tighten cross-border mergers and acquisitions, financial supervision CBRC promulgated new regulations, the CIRC to strengthen the insurance company investigation risk, etc., are all tight buckle decision-making "bubble suppression," the guide.

Perhaps a moderate deleveraging is being quietly pushed into the market.

But there are also voices that say the central bank's increase in term reverse repurchase operations is likely to make the market more stable, the bond market is not bad.

Great, really great! Said bond trader puts it, "the central bank's strategy is very clever!"

The trader explained that the first elongated cost of capital, forcing the formation of capital markets to the long term cost structure of the expected translation. This can be expected to automatically bring the market because of cost reduction initiative leveraged; moreover, the central mother did not pull away from the capital market, the market will not cause shortage of money.

The central bank to restart the 14 days reverse repo, "To be blunt, this is a relatively safe way of regulation, played a reverse intended purpose. Today, because of this bond yields rebounded sharply." There is also such a bond trader lamented.

EO: 央行突然放大招 债券市场“去杠杆”静悄悄

China Daily: Central bank continues longer-tenor cash injection
Despite a cash strain in the overnight inter-bank market, the central bank refrained from a large-scale injection, but extended the tenor of reverse repurchases instead, reducing market expectations for monetary loosening, CIB Research said in a note.

The move will lead to higher financing costs for banking institutions as the short-term money strain remains unaddressed, it said.

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