China’s money markets are expected to see a liquidity withdrawal of more than 3 trillion yuan ($411 billion) over the remainder of this month, helping to keep funding costs elevated before key meetings of lawmakers in March.

The bulk of the liquidity drain will come from the 2.4 trillion yuan needed to pay back the maturities of so-called policy loans from the central bank. A further 820 billion yuan is expected to be absorbed by bond issuance from local governments, based on monthly estimates from brokerage Huachuang Securities and data .

Keeping liquidity tight is seen as beneficial to the authorities as a way to help support the yuan at a time of uncertainty over US tariffs. The People’s Bank of China has drained about 1.5 trillion yuan of funds from the money market through its daily open-market operations since traders returned from Lunar New Year holidays on Feb. 5.

The overnight and seven-day repo rates both rose in Friday’s morning trading, as supply for loans fell short of demand, according to money market traders. The funding cost for overnight cash is 20-30 basis points above the weighted average price, they said.

Yield on one-year sovereign note spiked 10 basis points to 1.38%, while the benchmark 10-year yield also edged higher. The moves came after results from the latest bond auction signaled limited demand.

Source: FINANCE.YAHOO