China’s daily overnight repo turnover broke the 5 trillion yuan ($788 billion) mark Thursday, to reach a record high, data from the China Foreign Exchange Trade System showed. Onshore financial institutions ramped up borrowing this week to take advantage of cheaper funds after the People’s Bank of China lowered the rate on one-year medium-term loans for the first time in almost two years. “The market is in favor of a leverage strategy in the short term,” Qi Sheng, chief fixed-income analyst at Orient Securities said, “Leveraged trading will continue, and policy tightening will not be seen until there are definite signs of improvement in the economy.”
Brazil, the world’s biggest producer of soybeans, is keeping a firm grip on its dominant role as a supplier to China as the Asian country’s relations with the U.S. become increasingly frayed. Brazilian farmers provided 60% of all the soybeans imported by China last year, almost double the amount shipped by the U.S. The Asian nation depends on imports for about 85% of its soybean needs, which are processed into feed for the world’s largest hog herd.
The People’s Bank of China increased its cash injection via reverse repos to 100 billion yuan ($15.8 billion). That resulted in a net injection of 90 billion yuan. The PBOC had been draining cash in the last two weeks, which is routine following the Lunar New Year holidays. “The net injection is timely given a mild degree of liquidity tightness in the market with the seven day repo fixing slightly above the seven day policy rate,” said Winson Phoon, head of fixed income research at Maybank Securities Pte in Singapore. China’s seven-day repo rate rose to 2.15%, highest since January 30 as the demand for liquidity increased toward the end of the month for tax payments. The cash support also comes at the time when economic challenges for China are mounting. The nation’s provincial governments on Monday predicted income growth from taxes will slow and land-sale revenue will fall, putting them under greater fiscal pressure as they try to spend more to support flagging growth.