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“it feels like small and medium-sized banks are not short of money at the end of the quarter.” a capital trader in the financial markets department of a large state-owned bank told reporters with emotion.

at the beginning of september, he received information about overnight or 7-day capital position borrowing needs from many fund traders at small and medium-sized banks every morning. however, after the central bank recently lowered the required reserve ratio and continued to carry out reverse repurchase operations, the past two or three this information is significantly reduced on the trading day. in his view, behind this is the fact that market capital was quite loose at the end of the quarter.

this is also reflected in the funding interest rate pricing in the inter-bank lending market.

as of 17:00 on september 30, the transaction-weighted interest rates of the overnight interbank lending rate (dibo001) and the pledged repurchase rate (dr001) were 1.5509% and 1.5197% respectively, down about 1.5% from the month-end high reached on september 10. 40 basis points.

xiao jinchuan, an analyst at west china securities, told the media that the implementation of the rrr cut on september 27 released 1 trillion yuan in long-term funds, providing support for the easing of funds at the end of september. at present, net outflows of funds from the banking system are gradually recovering, rising from 2.7 trillion yuan to more than 4 trillion yuan. with bank capital supply taking the lead in recovering, market expectations for future funding easing have improved significantly. on the one hand, this is due to the implementation of the rrr cut, and on the other hand, it is also related to the release of funds from fiscal expenditure at the end of september.

the above-mentioned capital trader in the financial market department of a large state-owned bank said bluntly that with his long-term business relationship with small and medium-sized banks, he can basically complete the task of lending funds. however, if large banks continue to increase their efforts to lend out funds, a price war for funding rates in the interbank market may re-emerge soon.

"on september 30, in order to successfully complete the work indicators of lending funds, some banks lowered the overnight lending rate quotation to below 1.5%, which was significantly lower than the weighted interest rate on that day. this is reflected in the current ample liquidity from another aspect. "under the circumstances, the supply and demand relationship of funds in the inter-bank market has changed significantly compared with the end of previous quarters," he said.

image source: china currency network

loose funding at the end of the quarter makes it more difficult for major banks to withdraw funds overnight

wang qing, an analyst at oriental jincheng, pointed out that after the 7-day reverse repurchase operation interest rate was reduced by 20 basis points, various market interest rates were followed up by reductions. he judged that in order to ensure that market liquidity is reasonably sufficient at the new benchmark interest rate level and to stabilize the tightening liquidity situation before the holidays, the central bank will continue to implement reverse repurchase operations of a certain scale at the end of september.

on september 30, the central bank conducted a 212.1 billion yuan 7-day reverse repurchase operation in the open market, with the winning interest rate being 1.50%. since 160.1 billion yuan of 7-day reverse repos expired that day, the central bank's net investment into the market that day was 52 billion yuan.

affected by this, the overnight lending rate in the inter-bank market continued to hover at a low level that day.

the reporter learned that this is mainly affected by the recent increase in capital investment in the financial market by the central bank. in addition to the restart of 14-day reverse repurchase and the implementation of rrr cuts last week, the central bank has also continued to increase the investment in 7-day/14-day/mlf, even if the quarterly at the end of the year, due to higher government debt payments and higher demand for inter-quarter reserve funds from financial institutions, the financial market still showed ample funding and declining funding rates.

“the situation today is completely different from that in early september.” a fund trader from the financial markets department of the above-mentioned large state-owned bank told reporters. affected by the newly issued bonds reaching 947.4 billion yuan in august, small and medium-sized banks generally felt that their capital positions were tightening in early september. even though the overnight pledged repurchase rate (dr001) once rose to 1.94%, many small and medium-sized banks' capital transactions the clerk sends a message early every day asking whether there is a higher capital position for "lending". however, after the rrr cut on september 27, the number of small and medium-sized banks inquiring about fund lending positions and quotations has decreased in the past two or three trading days. even though small and medium-sized banks are still "inquiring", the amount of funds has shrunk significantly compared with early september.

image source: china currency network

the capital trader revealed that this situation also occurred during the daily morning meeting. in the past, the financial market department's capital trading team would hold morning meetings every day to discuss the day's capital and bond market trends, etc., and combine the day's capital situation and large-amount current account reporting status to calculate reasonable capital lending positions and plan the day's trading strategies. however, as the central bank cut reserve requirements and a series of reverse repurchase operations, the funding situation was relatively loose at the end of the quarter. many capital traders also reported that counterparties' overnight borrowing demand for funds has declined, and the funding interest rate may remain low.

"in the day trading session, we found that some small and medium-sized banks are also shopping around recently. in the past, they provided overnight fund lending interest rate inquiries to various counterparties through communication tools such as qtrade and ideal, and usually the counterparties quickly negotiated and finalized the details. however, in the past two or three days, these counterparties have waited for the lowest bidder to appear before negotiating," he told reporters. this made him feel that it was suddenly more difficult to complete his work tasks.

in his view, the loose funding at the end of the quarter also brought him additional "work pressure relief." 3:00 pm to 5:00 pm on each trading day is the back-end centralized clearing time. after fund traders confirm the transaction instructions on the central government bond registration and settlement integrated business platform, they must pay close attention to the fund delivery situation in the back-end. in the past, when funds were tight, he would be worried that the counterparty would not pay before the agreed time, and he would be worried that the other party's transaction would fail due to insufficient capital positions or system lags, which would lead to him being "responsible and punished." now, with the end of the current quarter, the funding situation was quite loose, and his worries about the counterparty's lack of funds and the failure of the transaction were suddenly reduced.

wang menghan, an analyst at zheshang securities, released the latest research report and pointed out that although there may be an increase in the issuance of trillions of treasury bonds in october, leading to an increase in capital stratification and capital volatility, given the current central bank's efforts to adopt reasonable and loose monetary policy measures, the future dr funding interest rate or remain relatively stable.

on september 25, the 2024 third quarter regular meeting of the monetary policy committee of the people's bank of china was held in beijing. the meeting pointed out that it is necessary to increase the intensity of monetary policy control and improve the accuracy of monetary policy control. maintain reasonable and sufficient liquidity, guide the reasonable growth and balanced release of credit, keep the scale of social financing and money supply consistent with the expected goals of economic growth and price levels, and promote prices to remain at a reasonable level.

why did the inter-quarter 7-day lending rate rise first?

faced with considerable liquidity at the end of the current quarter, fund traders in the financial markets departments of the above-mentioned large state-owned banks also feel certain competitive pressure.

"in the past, at the end of each quarter, some small and medium-sized bank fund traders would first inquire about our overnight fund placement amount and interest rate quotation, but in the past two or three trading days, their enthusiasm for inquiries has declined." he told reporters. he later learned that the relevant leaders of these small and medium-sized banks asked fund traders to find more overnight lending funds with lower interest rates.

fortunately, with the relatively good fund lending business and fund delivery performance in the past, it is not difficult for him to complete his tasks. the reason is that some counterparties such as small and medium-sized banks still have certain end-of-quarter financing needs. on the one hand, they need to pay for the funds due for financial products at the end of the quarter. on the other hand, due to the recent correction in the price of medium and long-term government bonds, related fixed-income financial products have affected by the fall in net worth, some financial institutions are also worried about increased redemption pressure from investors at the end of the quarter, so they reserve more funds in advance to calmly cope with the wave of redemptions.

it is worth noting that although the easing of liquidity at the end of the current quarter has caused the overnight lending rate to hover at a low level, the inter-quarter 7-day lending rate has quietly picked up.

data show that as of 17:00 on september 30, the transaction-weighted interest rates of the inter-bank 7-day interbank offered rate (dibo007) were 1.5701%, a significant rebound from the monthly low of 1.4783% set on september 27.

image source: china currency network

"although the market expects that funding will remain loose in early october, many financial institutions need to reserve sufficient capital positions during the holidays to cope with people's withdrawals and consumption, etc., resulting in relatively high inter-season 7-day fund lending demand, driving related interest rates to take the lead pick up." the fund trader explained to reporters.

however, some people in the industry believe that the situation of extremely loose funding and continued low funding rates will not last long.

jin qianjing, an analyst at shenwan hongyuan, said that in the next month, funding rates and short-end bond yields are expected to be at relatively low levels. however, in terms of funding at the end of the year, monetary policy is unlikely to continue to be loose, and funding rates are also difficult to achieve. remain at a relatively low level for a long time. if the implementation of subsequent economic stimulus policies improves economic fundamentals, the probability of an increase in low funding rates and short-term bond yields will be relatively high.

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