SHANGHAI/SINGAPORE, May 25 (Reuters) - The turnover of repurchase agreements (repos) traded in China's interbank market hit a record high on Wednesday, official data showed on Thursday, fuelled by hopes for further monetary easing measures and improved liquidity conditions.
Total turnover rose 193.9 billion yuan ($28.05 billion) to 8.22 trillion yuan on Wednesday, data from the National Interbank Funding Center showed, the highest on record.
High turnover is considered a gauge measuring leverage in the bond market, as investors take advantage of ultra-low short-term financing costs to fund investment in government bonds.
The volume-weighted average rate of the overnight repo traded in the interbank market has dropped more than 56 basis points this month to 1.5651% as of Thursday morning.
Investors built up bond leverages as they bet the central bank was likely to maintain ample liquidity conditions, traders said, as a raft of April data pointed to an economy losing momentum after the initial post-COVID bounce and lifted hopes of more monetary easing measures.
Yields on China's benchmark 10-year government bonds also fell to the lowest level since November, when China's stringent zero-COVID strategy was still in place.
It "clearly suggests that rates markets are very bearish on the growth outlook", said Duncan Tan, rates strategist at DBS.
"On liquidity, we think it will be kept balanced due to prudent monetary policy. That said, if credit demand is weak in the coming months, conditions could turn out to be flusher and DR007 (seven-day repo rate) could fix frequently below OMO rate."
The weighted-average rate of seven-day repo stood at 1.927% on Thursday morning. It has been trading below the policy rate of the central bank's reverse repos for the same tenor in May.
Borrowing cost of the central bank's short-term liquidity instrument, which is conducted via open market operations (OMO), was 2.0%. ($1 = 6.9121 Chinese yuan) (Reporting by Winni Zhou, Hongwei Li in Shanghai, Tom Westbrook in Singapore)
