The Wenzhou Comprehensive Index ended February at 19.74%. That is one basis point lower than the ending rate for January, and 31 basis points below the trailing February average, which stood at 20.05%.
At 3.41%, the Shibor overnight rate is higher than the yield on a 12 month term deposit, which stood at 3.00% at the end of February. Both represent loans to the same financial institutions, so credit quality is the same. In a normal interest rate environment, the short-term yield should be lower than the long-term yield, but this not a normal interest rate environment.
The highest-yielding maturity for Shibor loans in February was the one-month rate at 5.08%. The prime lending rate was 5.60% in February, so the minimum spread was only 52 basis points. The yield curve significantly flattened since the same time last year.
The Chinese state-sector is experiencing higher borrowing costs, a flattening yield curve, and compressed spreads. This will most likely lead the central bank to inject more money into the capital markets to delay the cleansing effects of a market correction. This will lead to further downward pressures on the renminbi against major foreign currencies, especially the U.S. dollar.
