Liquidity Squeeze in Chinese Markets

Key China mkt rate spikes on liquidity squeeze

SHANGHAI, Dec 21 (Reuters) - China's benchmark money market rate leapt 54 basis points to a fresh more than two-year high early on Tuesday, as traders reported an acute shortage of funds after a slew of official tightening steps.

"No money is what I can say,"" a trader said, describing the money market situation, adding that some major banks who typically are lenders, were also trying to borrow on Tuesday.

"Everybody is busy borrowing," said a trader. "Who has extra money to buy PBOC bills? In addition, the yields are so low." Over the past several weeks, the PBOC has found it increasingly difficult to attract demand for its bills, as the yields offered at auction have lagged behind the cost of money in the secondary market.

Nevertheless, it persists on keeping auction yields on its bills low, apparently to cushion widespread expectations of another imminent rate hike, although such hikes are still seen inevitable in the long term due to high consumer inflation.