CHINA’S 715 billion yuan (US$110 billion) cash injection into its financial system last month has helped avert a rout in the domestic corporate bond market, easing pressure on the central bank to take more aggressive action.

    The spread between China’s interbank market high-yield bond index and the AAA rated index has fallen 9 basis points since early May, after spiking nearly 20 basis points in the second half of April to its widest since 2012. Corporate yields have dropped sharply, with the interbank medium-term note index down 15 basis points since late April and other yield indices also broadly down.

    Analysts attribute the fall in yields in part to the People’s Bank of China’s heavy late April use of its medium-term lending facility (MLF), used to provide banks with low-cost three and six month loans.

    “The government still wants to lower the cost of doing business and the central bank has a lot of tools now like the MLF to keep money market rates stable,” said Ding Shuang, head of greater China economic research at Standard Chartered Bank in Hong Kong.

    Corporate debt yields, up by over 50 basis points in April in many cases, peaked April 26 and 27 immediately after the central bank’s 267 billion yuan MLF injection April 25. The injection brought the total for April to 715 billion yuan, compared with nothing in March and just 163 billion yuan in February. (SD-Agencies)