PBOC Moves A Step Closer to Yield-Curve Control
The PBOC announced a new, additional daily open-market operation window (4-4:20 p.m.) today for financial institutions to deposit or borrow temporary overnight funds, with the associated rates based on spreads around the seven-day reverse repo (RR) rate -- and hence forming a new policy-rate corridor.
Apart from facilitating the plan to sell CGBs going forward, as the new rate ceiling could prevent short-end rates jumping too much upon any liquidity drain (hence, essentially a yield-curve control), this could also be an intention to further nurture the 7-day RR as the key policy rate (away from the 1-year MLF rate) going forward. The asymmetric rates corridor may also reflect some tolerance for short-end rates rise in the near-term ...
For the Bloomberg Intelligence react written with Jason Lee out earlier this morning, please visit the rates strategy homepage BI RATEN <GO>: "PBOC New Policy-Rate Corridor Paves Way to Yield-Curve Control" (terminal link: https://lnkd.in/gESAn2Ts).
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PBOC 7-Day RR and the New Corridor
(Source: Bloomberg Intelligence)
Head of Department Market Infrastructure Supervision & Derivatives at Swiss Financial Market Supervisory Authority FINMA
1moI'll keep this in mind