SHANGHAI: Chinese money market rates and bond yields rose this week as the government stepped up its crackdown on the shadow banking and riskier financing practices, but fresh cash injections by the central bank helped avert any severe cash shortages.
Analysts say the injection of 665.5 billion yuan (US$96.76 billion) into the banking system by the People's Bank of China (PBoC) this week was mainly aimed at preventing a repeat of the 2013 liquidity crisis, when its inaction in money markets fuelled a cash crunch that saw short-term rates spike, alarming global markets.
But traders are convinced that authorities are sticking to a gradual policy tightening path as they try to wring more leverage out of the system to reduce risks from years of debt-fuelled stimulus.
China's benchmark seven-day repo traded in the interbank market, considered the best indicator of general liquidity, closed at 2.9074 on Thursday, up from last week's close of 2.6729. The repo rates fell on Friday morning.
China's 10-year treasury yields have climbed to around 3.45% from last week's close of 3.359%.
The rise in market rates follows signs that China is stepping up its crusade against shadow banking.
China's banking regulator has issued a flurry of directives on risk management almost daily since getting a new boss, Guo Shuqing, in February.
Last week, the China Banking Regulatory Commission (CBRC) ordered lenders to conduct "self-inspections", targeting lenders' risky investments using regulatory loopholes.
It also has asked lenders to look into the guarantee chains of its borrowers, according to a document seen by Reuters, the latest in a slew of policy initiatives to reduce the risk of defaults snowballing through the financial system.
Industrial Securities attributed the debt market weakness to "financial institutions' behavioural adjustments to high-pressure regulations," rather than economic fundamentals.
Financial magazine Caixin reported on Thursday that lenders including ICBC, China Construction Bank and Citi Bank have started reducing their bond holdings in a bid to meet regulatory requirements on investments and liquidity.
In an apparent effort to assuage market fears, China's central bank resumed open market operations last Thursday after a 13-session hiatus.
This week, PBoC has injected 170 billion yuan via reverse bond repurchase agreements (reverse repos) and 495.5 billion yuan via medium-term lending facility.
It doesn't represent a loosening of monetary policies," said Zheng Lianghai, analyst at Donghai Securities.
PBoC just wanted to ease market sentiment. It has learnt lessons from the past," he said, referring to the crisis in 2013. - Reuters