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August Month-End Liquidity Withdrawn

CHINA RATES

The PBOC drained a net CNY 40bn via OMO's today, taking away the last of the additional liquidity injected heading into month-end. Repo rates are higher but remain within recent ranges with the overnight and the 7-day rate inverting again; the overnight rate up 7.95bps at 2.1995% the 7-day rate up 3.73bps at 2.1873%. Bonds futures are lower on track for a fourth day of declines, the 10-Year contract is down 2 ticks at 110.19. Stocks are higher, exchange data showed net foreign inflows of CNY 7.1bn of Chinese shares via stock connect yesterday, denoting a tenth consecutive session of purchases.

  • As foreign inflows into stocks gather steam, bond inflows have slowed as China's yield premium over the US erodes. According to figures compiled by Bloomberg overseas investors bought CNY 17.3bn in August, down from over CNY 50bn in July. The dynamic is expected to continue as talk of an RRR cut in China increases while the US gradually moves closer to tapering.

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