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MLF Falls Below Market Expectations

CHINA RATES

The MLF operations from the PBOC slightly smaller than consensus at CNY 500bn (est. CNY 770bn), rates for the MLF operation remain unchanged at 2.95%.

  • This equates to a net drain from the PBOC with some CNY 300b yuan of MLF mature today and CNY 240.5b of TMLF mature on Jan. 25 (total CNY 540.5bn due). This is the first MLF liquidity withdrawal since July 2020.
  • The smaller injection concurs with the narrative that the PBOC will gradually start to tighten monetary conditions as policymakers address concerns over leverage in the financial system.
  • Yields rise across the curve in China in response to the smaller than expected operation, 10-year yield last up 1.4bps at 3.09%.

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