AT least one domestic bank provided liquidity support worth several billion yuan to fund management firms via short-term lending tools yesterday, two sources with knowledge of the matter said.

    The sources, who declined to be named, said the bank injected the funds via bond repurchase agreements, in a move that signals easier access to funding by non-bank financial institutions such as fund houses and brokerages.

    The injection, which comes on the same day Sealand Securities Co. promised to honour a problematic bond transaction agreement, in effect avoiding default in a high-profile bond scandal, helped ease fears of a liquidity squeeze in the financial system and boosted bond prices.

    Zhou Hao, economist at Commerzbank, said China’s market liquidity conditions improved somewhat as Sealand Securities avoided defaults with its counterparties, but cautioned that “the risk of bond deleveraging won’t disappear immediately.”

    China’s 10-year treasury futures for March delivery surged around 1.3 percent in late afternoon trade, rebounding from a record intraday low touched Tuesday.

    Counterparty risks between banks and other types of financial institutions, including fund houses, brokerages and trust firms, spiked after media reports last week that Sealand Securities defaulted on a bond agreement with Bank of Langfang.

    Sealand Securities, which had previously denied such an agreement, said yesterday it would accept the responsibility for “forged bond agreements.” It had earlier said its company seal had been forged by two former employees. (SD-Agencies)