China PBOC Introduces Overnight Reverse Repo But Keeps Rate Undisclosed

The PBOC has launched an overnight reverse repo facility while keeping the rate opaque to maintain the primacy of the 7-day policy rate. Market participants interpreted the reported 1.25% rate as dovish, supporting an outlook for lower front-end yields.

Key Takeaways

• 1.The PBOC introduced a new overnight reverse repo tool with operations on June 29-30, but declined to disclose the operating rate, likely to avoid confusing the market while the tool matures.
• 2.Market reports suggest an operating rate of 1.25%, which is viewed as dovish relative to expectations of 1.30%-1.35%, reflecting easy funding conditions.
• 3.Goldman Sachs expects China cash yields and swap rates to move lower, particularly at the front end, due to ample liquidity and lingering growth headwinds.

Table of Contents

• What happened
• Why it matters
• Our view and market implications

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