Pudong, Shanghai Photo: Wikimedia Commons

China’s seven-day repurchase rate, a gauge of intrabank funding availability, is trading near its lowest level in six months, despite the fact that the central bank has refrained from injecting funds in the financial system for over a week.

Bloomberg reports three potential reasons for this:

  • Seasonal pattern in which money rates tend to fall in July,
  • speculation a reported curb on loan issuance is keeping banks flush with cash,
  • and an increasing willingness among Chinese corporations to convert foreign currency holdings into a strengthening yuan

“It’s a mystery to us,” Yan Yan of China Guangfa Bank Co was quoted as saying. “We know liquidity tends to improve after end-June, but this time it’s much looser than people had expected.”

The looser liquidity presents an opportunity for a bond market rebound following the longest run of quarterly losses in almost ten years.

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