• Central bank drains $23 billion of funds from financial system
• Spread between bond yield and key money market rate shrinks

(Bloomberg) — 

The People’s Bank of China drained a net 150 billion yuan ($23 billion) of funds on Thursday using open-market operations, the largest such amount since October. That adds to its 178 billion yuan withdrawal from the past two days, and comes after the central bank unexpectedly mopped up medium-term liquidity earlier this month.

The moves have dried up activity in the country’s repo market, with the overnight rate seeing only a handful of quotes as of 10:30 a.m. Thursday. Traders said lenders were unwilling to offer large loans to each other, while non-bank financial institutions charged high rates. Some brokers offered overnight funds at a cost of 10% and seven-day cash at 5%, said the traders, who asked to not be named as they are not authorized to comment on the money market.

China’s one-year interest rate swaps — a measure of expectations for future liquidity -– rose for the fifth session to 2.61%, in line for the highest since mid-December. The ChiNext index of stocks, where leverage is rampant, fell almost 3%.