SHIBOR Approaches Prime Rate

The Standard: Shanghai interbank rate at two-month high
The one-year Shanghai Interbank Offered Rate rose to 4.3024 percent yesterday, up 0.99 basis point from the previous day - the highest in two months.

It is also the first time one-year SHIBOR climbed above the one-year prime loan rate of 4.3 percent.

One-year SHIBOR has been on the uptrend for a month, and has risen about 10 basis points so far. Meanwhile, five- month SHIBOR adjusted downward slightly, but rates for mid-to-long term are still on the rise. The three-month and six-month SHIBOR maintained their inverted status with one-year SHIBOR since the beginning of this year.
Merchant's Bank asks, "Is this the start or the end?"

iFeng: SHIBOR和贷款利率倒挂说明什么 开始还是结束?
On May 22, the Shanghai Interbank Offered Rate SHIBOR offered a one-year offer of 4.3024%, the highest one-year, more than 4.30% of the Shanghai interbank market's one-year loan base rate (LPR) The central bank's one-year loan rate of 4.35% is only one step away.

It is noteworthy that interbank deposits offer and interbankal one-year pledged repo rates have been on top of LPR, and the internal capital cost of banks has been generally higher than the benchmark interest rate.

SHIBOR and loans upside down, means that the bank will gradually push the pressure to the real economy, the real economy financing costs continue to rise, the economic downward pressure to increase.

...Merchant Securities: Shibor over LPR, start or end?

The LPR interest rate on behalf of the real economic financing needs and the upside down on behalf of the financial market financing costs indicate that "deleveraging" is only present in the financial system, especially the "contraction", which has not yet been delivered to the real economy.

With the "scale" to continue, the interest rate system once again "abnormal". 1-year Shibor (interbank lending) for the first time over 1 year LPR (loan benchmark), taking into account the offer line is a large bank, the departure between the two seems to reflect the debt and assets between the "spread" upside down , But can not just look at the surface, after in-depth analysis we believe that the following conclusions:

1) The change in interest rates reflects the "marginal" cost difference between commercial bank liabilities and assets. The same period of time Shibor and LPR appear upside down, which means that liabilities (mainly interbank liabilities) are tightened at the margins, while asset ends (credit assets) remain marginal and loose, the former associated with the industry "contract", the latter with the real economy Weak demand, which is in line with the current situation: supervision "to leverage" and the cycle of "illusion" burst.

2) the margin of assets and liabilities "negative" negative, does not mean that banks will shrink the table. First, the spread between the two is not large enough, the marginal "spread" negative value does not necessarily mean the average "spread" is negative, the bank still has the power to expand the assets; second, the same industry liabilities accounted for the overall liabilities Is not high (about 5% of deposits), so the marginal increase in the cost of interbank liabilities is not necessarily higher than the average cost of overall debt; Third, non-standard asset interest rates are still low, because the debt-side interest rate is not the end of the asset The pull of the yield, asset-liability mismatch brought about by the rigid debt gap is likely to be the main reason for the debt-rate rise.

3) Shibor over LPR, probably just started. As long as the average interest rate of the asset exceeds the average cost of the debt and there is no exit mechanism (the bank will not collapse), the commercial bank will rely on the "scale" to hedge the "spread" narrowing until the asset average interest rate is lower than the average cost of the debt. As commercial banks continue to increase the "relative supply" of credit, the interest rate of credit will be further upside down with the interest rate level of financial markets (non-standard transitions will also lead to the "real" risk of credit), and Shibor and LPR The spread will be further expanded.

The LPR interest rate on behalf of the real economic financing needs and the upside down on behalf of the financing costs of the financial market indicate that "deleveraging" is only present in the financial system, especially the "contraction", which has not yet been delivered to the real economy. Two possibilities:

The first is the real economy "to leverage" large-scale emergence, resulting in substantial increase in the cost of real economic financing, economic growth once again bottom, then the financial market "deleveraging" is likely to end, capital costs and bond rates may fall ;

The second is the real economy is still "stable lever", the credit average financing costs remain stable, the financial market "deleveraging" will continue to the debt gap so that the financial market triggered a liquidity crisis, local clear will lead to "leverage "A one-time decline, thereby easing the financial market liquidity pressure.

Combined with real estate, commodities and the stock market trend, we believe that the probability of the first case is higher than the second case.

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