In the first week of December (1-5), liquidity conditions eased naturally at the start of the month. The weekly average overnight rate R001 stood at 1.36%, down 2 basis points (bp) from the previous week, while R007 declined 4 bp to 1.49% compared to the cross-month week.
The central bank conducted its routine large-scale liquidity withdrawal after month-end injections, reclaiming RMB 2.5 trillion (including RMB 1 trillion in outright reverse repos). Despite this, money market rates remained comfortably low, with only a slight uptick on Friday. From Monday to Thursday, the overnight rate R001 dropped from 1.43% at month-end to 1.36% and stabilized near this level. Similarly, the 7-day rate R007 hovered around 1.49%, with daily fluctuations within 1 bp. On Friday, however, accumulated pressure from consecutive net withdrawals led to a minor tightening, pushing R001 and R007 up by 1.1 bp to 1.37% and 1.50%, respectively.
Notably, the central bank rolled over RMB 1 trillion in 3-month outright reverse repos on December 3, matching maturities. This suggests no reduction in liquidity support but rather an adjustment in the maturity structure, with expectations for increased 6-month operations to ensure ample year-end liquidity.
Bank net lending rebounded as liquidity eased. From December 1-4, daily average interbank lending rose to RMB 4.49 trillion from RMB 4.14 trillion the prior week. Large banks led the increase, with daily lending climbing to RMB 4.81 trillion (vs. RMB 4.29 trillion), while joint-stock banks also expanded net lending to RMB 229.5 billion (vs. RMB 195.1 billion). City commercial banks shifted from net lending (RMB 43.4 billion) to net borrowing (RMB 113.9 billion).
Certificate of deposit (CD) issuance rates edged higher, with 1-year state/ joint-stock bank CDs fluctuating narrowly between 1.64%-1.66% (vs. 1.65% or lower previously). Net CD financing turned positive at RMB 9.3 billion (from -RMB 215.9 billion), driven by lower maturities rather than issuance growth.
Looking ahead (December 8-12), liquidity is expected to stay stable, with R001 likely anchored near 1.36%. However, 7-day rates may see slight volatility as borrowing from Thursday (11th) would span the tax payment period (15-17).
Key factors include: 1. Open market operations: RMB 663.8 billion in reverse repos will mature, below the 2025 weekly median of RMB 1.0327 trillion. 2. Government bond net settlements: Estimated at -RMB 45.2 billion, with a potential RMB 60 billion 3-month T-bill issuance lifting net settlements to RMB 14.8 billion. 3. A RMB 750 billion special bond (2200001) matures on December 12, but its impact is negligible as it was originally absorbed by central bank purchases.
**Reserves Data** Excess reserves fell by RMB 1.1 trillion in early December, with open market operations and bond settlements contributing to a RMB 1.0 trillion drop (excluding fiscal flows). October’s excess reserve ratio dipped to 1.2% (from 1.4% in September), with reserves at RMB 3.5 trillion (vs. RMB 4.1 trillion).
**Upcoming Liquidity Events** - December 8-12: RMB 663.8 billion reverse repos mature. - December 15: Watch for RMB 400 billion 6-month outright reverse repo rollover. - December 25: RMB 300 billion MLF matures.
**Bill Market** Rates diverged, with 1-month bills down 39 bp to 0.11%, while 3M/6M rose 5 bp/8 bp to 0.42%/0.81%. Large banks switched to net buying (RMB 8.9 billion vs. net selling RMB 52.7 billion).
**Government Bonds** Planned issuance: RMB 390.5 billion (vs. RMB 331.7 billion prior), including RMB 343.5 billion in T-bills (est.). Net settlements: -RMB 45.2 billion, with a RMB 223.5 billion T-bill settlement deferred to December 15.
**CD Market** Issuance rates rose slightly, with 1-year CDs at 1.64% (+1.2 bp weekly). Net financing: RMB 9.3 billion (vs. -RMB 215.9 billion). Maturity pressure mounts, with RMB 1.0614 trillion due next week (vs. RMB 485.8 billion).
**Risks** Unexpected shifts in liquidity or monetary policy due to domestic/global economic surprises.
*Disclaimer: This content is for informational purposes only and does not constitute investment advice.*
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