Chinese Banks Begin Using DR001 as Bond Pricing Benchmark After PBOC Push

Money & Banking··CN·Read original
2▲2 ▼0Impact / 5
Summary · why it matters

Chinese banks are increasingly adopting the overnight repo rate, or DR001, as a benchmark for pricing bonds, following the People's Bank of China's push to make it a new reference rate to enhance monetary policy transmission. China Merchants Bank is set to issue a three-year floating-rate bond this week, using this rate as the benchmark, aiming to raise up to 2 billion yuan, or about 298 million US dollars. This will be the first time a domestic Chinese commercial bank uses DR001 for a debt instrument, after the Export-Import Bank of China became the first financial institution to use this benchmark. This move follows several Chinese banks beginning to use DR001 to price loans, aligning with the PBOC's direction to promote this rate as a key mechanism for monetary policy transmission. Currently, the popular benchmarks for Chinese floating-rate bonds include the 7-day repo rate, the Loan Prime Rate (LPR), and the Shanghai Interbank Offered Rate (SHIBOR). Becky Liu, head of Greater China strategy at Standard Chartered Bank, views this change as supporting the transition to a new interest rate framework and could open room for the PBOC to ease monetary policy further, if it helps maintain banks' net interest margins. Meanwhile, Shanghai Clearing House stated that issuing bonds linked to DR001 will expand the channels for transmitting interest rates from the money market to the bond market, and aligns with global market practices that favor overnight risk-free rates as benchmarks.

Impact on assets 3

Financials▲ · 1 stocks
Others▲ · 1 stocks
China Merchants Bank Co Ltd
600036
▲ PositiveCapitalrelevance

China Merchants Bank issues first DR001-linked bond, aligning with PBOC policy and enhancing its funding capabilities.

Others▲ · 1 stocks

Off-coverage companies 2

The Export-Import Bank of ChinaPrivate▲ Positive
Capitalrelevance

Export-Import Bank of China was first to use DR001 benchmark, reinforcing its role in policy transmission.

Shanghai Clearing HousePrivate± Mixed
relevance

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