On June 5th, the central bank announced its first advance notice of a reverse repurchase operation. The central bank stated that in order to maintain ample liquidity in the banking system, it will conduct a reverse repurchase operation of 1 trillion yuan on June 6th.
Industry insiders told the Financial Associated Press that against the backdrop of a stable funding environment and bond market, the central bank's break from tradition at the beginning of the month to announce a large-scale reverse repurchase operation may be related to the continued peak of interbank certificates of deposit maturing in recent months.
Data shows that the maturing amount of interbank certificates of deposit in June is expected to reach 4.2 trillion yuan, setting a historical monthly record. Among them, the early and mid-June periods are concentrated maturity points, with approximately 920 billion yuan and 1.95 trillion yuan of certificates maturing, respectively.
&#34;June is often a big month for credit, and financial institutions have a high demand for funds. Advancing the reverse repurchase operation to June 6th will help financial institutions participate in bidding in a timely manner according to their funding needs and make liquidity arrangements in advance,&#34; an industry expert told the Financial Associated Press.
Central Bank Announces First Advance Notice of Reverse Repurchase to Support Financial Institutions' Funding Needs
According to the announcement on the central bank's official website, from October 2024 to May this year, the central bank has conducted reverse repurchase operations for eight consecutive months, with scales ranging from several hundred billion to over a trillion yuan, with results disclosed at the end of each month. Today, the central bank released the operation volume and term forecast for the reverse repurchase business for the first time, breaking from tradition.
The central bank announced that in order to maintain ample liquidity in the banking system, it will conduct a reverse repurchase operation of 1 trillion yuan on June 6th through fixed quantity, interest rate bidding, and multiple price bidding methods, with a term of 3 months (91 days).
&#34;Today, the central bank broke the tradition of announcing the monthly reverse repurchase operation at the end of the month and announced a large-scale reverse repurchase operation at the beginning of the month, attracting market attention,&#34; said Wang Qing, chief macro analyst at Dongfang Jincheng, to the Financial Associated Press. In the current stable funding environment and bond market, the central bank's announcement of a large-scale reverse repurchase operation at the beginning of the month may be related to the continued peak of interbank certificates of deposit maturing in recent months. This helps maintain the banking system's liquidity at a sufficient level, control funding fluctuations, and stabilize market expectations.
It is understood that the public market reverse repurchase adopts fixed quantity, interest rate bidding, and multiple price bidding, with repurchase targets including government bonds, local government bonds, financial bonds, corporate credit bonds, etc. The operation targets are primary dealers in the open market, and operations are generally conducted once a month, with a term not exceeding 1 year. The results of the operations will be disclosed through relevant sections on the central bank's official website.
&#34;June is often a big month for credit, and financial institutions have a high demand for funds. Advancing the reverse repurchase operation to June 6th will help financial institutions participate in bidding in a timely manner according to their funding needs and make liquidity arrangements in advance. By injecting medium- and short-term liquidity into the market through reverse repurchase operations at the beginning of June, it helps maintain ample market liquidity at the end of the half-year and better maintain the stable operation of the financial market,&#34; said Dong Ximiao, chief researcher at Zhaolian and deputy director of the Shanghai Financial and Development Laboratory, to the Financial Associated Press
Wang Qing further stated that in June, there will be expirations of 500 billion 3-month and 700 billion 6-month reverse repos, which means that on June 6, the central bank will implement an additional operation of 500 billion 3-month reverse repos, while the overall situation of reverse repos in June will depend on whether the central bank has any new operational announcements at the end of the month.
&#34;Additionally, after the central bank and other departments launched a package of financial policy measures on May 7, a current focus is to encourage banks to increase credit support for the real economy and support government bond issuance. Increasing medium-term liquidity at this stage releases a policy signal of sustained strength in quantitative policy tools, which helps promote the process of broad credit and strengthen counter-cyclical adjustments,&#34; Wang Qing pointed out.
Dong Ximiao noted that under the current environment, the MLF bidding rate is at a relatively high level, and financial institutions' demand for MLF is gradually decreasing. In this context, the central bank has announced a 1 trillion yuan reverse repo operation, which will &#34;replace&#34; the expiring MLF through reverse repo operations, helping to further reduce the funding costs for financial institutions and alleviate the pressure from narrowing interest margins.
At the beginning of the month, there is no concern about liquidity, and the downward space for the DR007 interest rate center is relatively small.
Recently, the central bank has taken measures to protect liquidity, and the liquidity situation at the beginning of June has transitioned smoothly. As of June 5, the Shanghai Interbank Offered Rate (Shibor) overnight rate was reported at 1.408%, and the 7-day Shibor decreased by 0.9 basis points to 1.543%. In terms of repo rates, the weighted average rate of DR007 decreased to 1.5509%.
Wang Qing told a reporter from CaiLianShe: &#34;The bank assessment node at the beginning of the month has passed, and the liquidity situation has turned to be loose. The decline in funding rates across various maturities at the beginning of June is in line with the timing pattern. In the future, the central bank will continue to comprehensively use collateralized reverse repos, MLF, and reverse repos to guide the liquidity of the banking system to remain abundant.&#34;
Dong Ximiao expects that in the near future, MLF will continue to decrease in volume, and the balance will continue to decline. The central bank will strengthen the regulation of market liquidity through various monetary policy tools and implement a moderately loose monetary policy.
CITIC Securities Fixed Income Department stated that looking ahead to June, the disturbance of fiscal factors on liquidity may marginally weaken. Considering that the scale of credit issuance in June is usually high under the context of banks' half-year assessments, coupled with the pressure on the liability side of banks after the new round of deposit benchmark rate cuts, liquidity may find it difficult to achieve spontaneous balance. It is expected that the central bank will further inject medium- to long-term liquidity through reverse repos, MLF, and other means, and the overall liquidity situation in June is still expected to maintain a balanced supply and demand pattern, with the DR007 interest rate center likely to remain at a low level slightly above the policy interest rate.
Looking ahead to June, the large amount of interbank certificates of deposit maturing is one of the main disturbance factors, but the market expects that liquidity will still transition smoothly. Wind data shows that the maturing amount of interbank certificates of deposit in June is expected to reach 4.2 trillion yuan, setting a historical monthly record. Among them, the early and mid-June periods will be concentrated maturity points, with approximately 920 billion and 1.95 trillion yuan of certificates maturing, respectively
At the same time, this week will see the maturity of over 1.6 trillion yuan in reverse repos, the largest scale for the same period in recent years. &#34;The current situation is more similar to early May this year. At that time, the central bank faced the same scale of maturity pressure and chose to increase the scale of reverse repo operations to hedge. It is expected that the central bank will still maintain a steady operational pace this week, alleviating the maturity gap by increasing the injection of funds, and the liquidity situation is likely to remain stable,&#34; said Xiao Jinchuan, macro joint chief analyst at Huaxi Securities.
&#34;The cumulative maturity scale of interbank certificates of deposit in June is relatively large, but it will not change the basic trend of a steady decline in the yield of interbank certificates of deposit at maturity. However, considering the current low long-end yields in the bond market and the regulatory focus on fund turnover, the possibility of DR007 significantly declining and the monthly average falling below the policy interest rate of 1.4% is also low,&#34; Wang Qing believes.
However, Wang Qing pointed out that overall, there is ample space for moderately loose monetary policy in the second half of the year, which will become an important support point for hedging external fluctuations, promoting a reasonable rebound in price levels, and facilitating high-quality development. Overall, under the combined effects of the above factors, there is still some downward space for market interest rates in the second half of the year.
This article is reproduced from &#34;Cailian Press,&#34; edited by Jiang Yuanhua of Zhitong Finance

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The central bank has announced for the first time that it will conduct a 1 trillion yuan reverse repurchase operation on June 6, breaking the previous practice of announcing at the end of the month. This move aims to maintain ample liquidity in the banking system and control fluctuations in the funding environment. Industry insiders pointed out that this operation is related to the record high maturity amount of interbank certificates of deposit in June, which is expected to reach 4.2 trillion yuan. Conducting reverse repurchase operations in advance helps financial institutions arrange liquidity in a timely manner to meet credit demand

- On June 5, the central bank announced a 1 trillion yuan reverse repurchase operation to maintain liquidity in the banking system, scheduled for June 6.  
- This decision comes amid a peak in interbank certificate maturities, with June's total expected to reach 4.2 trillion yuan, the highest monthly record.  
- Experts suggest that this early operation will help financial institutions manage liquidity needs effectively, supporting a stable financial market.

Zhitong

Bank of Shanghai

HUAXI Securities

CITIC SEC

Breaking the convention! The central bank will conduct a 1 trillion yuan buyout reverse repurchase operation. What signal does the first "preview" release?