China central bank drains short-term liquidity for the first time in 8 days, bond markets recover

SHANGHAI, Nov 21 (Reuters)China’s central bank drained short-term liquidity from the banking system for the first time in eight days on Monday, as bond markets recovered from a recent sharp selloff.

The People’s Bank of China (PBOC) injected 3 trillion yuan ($418.96 million) through seven-day reverse repurchase agreements in open market operations on Monday. With 5 billion yuan worth of such loans maturing on the same day, it resulted in a net withdrawal of 2 billion yuan. CN/MMT

The fund withdrawal came after the central bank net injected 368 billion yuan through such a liquidity instrument last week as the bond markets posted its worst single-day selloffs in two years with risk appetite boosted amid rising expectations that China will gradually ease its strict COVID-19 restrictions and official moves to support the troubled property sector.

On Monday, bond prices rose across the board. The benchmark 10-year government bond futures CFTZ2 rose more than 0.3%, while the yield on government bonds for the same tenor CN10YT=RR fell more than 2 basis points.

Sentiment has gradually recovered, traders said, adding that easing cash tensions and worsening domestic COVID-19 infections across the country also lent support.

“Both futures and spot markets rose in early trade as COVID situations intensified and cash situations loosened,” said a trader at a brokerage.

Beijing’s most populous district urged residents to stay at home on Monday, extending a request from the weekend as the city’s COVID-19 case numbers rose, with many businesses shut and schools in the area shifting classes online.

Separately, China kept its benchmark lending rates unchanged for the third straight month on Monday, but some market watchers predicted a marginal reduction to the mortgage reference rate as early as next month to prop up the broader economy.

($1 = 7.1606 Chinese yuan)

(Reporting by Winni Zhou, Li Hongwei and Brenda Goh; Editing by Lincoln Feast.)

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