Chinese banks use one-night rate for bond pricing

Chinese banks have begun pricing their bonds based on the overnight funding cost (the "repo" rate), in an effort to promote this indicator as a key benchmark in the financial system. China Merchants Bank issued a three-year bond with a variable interest rate linked to the repo rate, expecting to raise up to 2 billion yuan (approximately $298 million). Additionally, the Export-Import Bank of China became the first government bank to use the repo rate as a reference for bond issuance pricing, with other banks also moving toward adopting it more widely. This initiative is part of the central bank's efforts to cement this indicator as a foundation for its monetary policies, emphasizing improved flexibility and more precise liquidity management. The shift reflects China's desire to adopt a monetary policy framework closer to the global standard. Alongside these developments, the central bank has lowered interest rates and enhanced short-term liquidity management operations to improve asset pricing efficiency and foster greater financial stability.

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