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China Pumps $17 Billion Into System Amid Evergrande Concerns

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·2-min read
China Pumps $17 Billion Into System Amid Evergrande Concerns
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(Bloomberg) -- China’s central bank net-injected the most short-term liquidity in eight months into the financial system, with markets roiled by concerns over China Evergrande Group’s debt crisis.

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The People’s Bank of China pumped in 110 billion yuan ($17 billion) of cash with seven- and 14-day reverse repurchase agreements. That was the largest addition through open-market operations since late January, when a funding squeeze sent interbank rates soaring. Prior to Thursday, the PBOC had injected liquidity for three straight sessions, stoking bets that Beijing hopes to soothe market nerves over Evergrande.

The need to help calm market jitters is pressing, as concerns over Evergrande’s ability to make good on its liabilities spills over into global markets. Focus is on whether the developer can pay $83.5 million of interest due Thursday on a five-year dollar note. The coupon on the security, which has a 30-day grace period before a missed payment would constitute a default, is part of $669 million of bond interest due through the end of this year.

“The entire real estate sector, and consequently, financials, are in question, and vague statements to avoid defaults won’t cut it for long,” said Craig Botham, chief China economist at Pantheon Macroeconomics Ltd. “The PBOC’s reserve-requirement ratio cut is now more necessary than ever.”

Short-term interbank rates fell due to the PBOC’s cash injections. The overnight repo rate slid 14 basis points to 2.01%, the lowest level since Sept. 3, while the seven-day rate dropped for a third straight day. The yield on 10-year government bonds fell one basis point to 2.85%.

The indebted developer’s Hong Kong-listed shares rose on 18% Thursday. They were up as much as 32% in morning trading, as investors bet the company would avoid a disorderly debt resolution after one of its units negotiated interest payments on yuan bonds.

Apart from attempting to ease market concerns over Evergrande, authorities also tend to loosen their grip on liquidity toward quarter-end due to increased demand for cash from banks for regulatory checks. Lenders also need to hoard more funds ahead of the one-week holiday at the start of October.

(Adds quote in 4th paragraph, adds 5th paragraph to show latest price on interbank rates, and updates 6th paragraph with Evergrande shares.)

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