Study On The Influencing Factors Of Inter-bank Bond Repo Rate In China

The bondholders use the bonds held as collateral to borrow funds, and at the same time, agree to repurchase the same bonds at a future time at an agreed price. We define this trading as bond repurchase agreement, which happens in the secondary bond market. China’s bond repurchase market includes the inter-bank bond repo market and stock exchange bond repo market. The inter-bank bond repo market is an important component of the money market and the main place for the implementation of the central bank’s monetary policy, dominating the bond repo market. Studying the factors that influence the inter-bank bond repo rate is of importance to the liquidity management of financial institutions and the forming of the central bank’s monetary policy.The inter-bank bond repurchase rate is affected by many economic variables, and the repo rate fluctuation will not only reflect the money market’s supply and demand, but also influence the investment and financing decisions of market participants. This paper uses a theoretical approach to analyze the factors influencing the repo rate from the perspectives of monetary policy, monetary market and capital market, with the focus on the public offerings in capital market.Based on liquidity preference theory and the loanable funds theory, this paper studies the factors influencing the inter-bank bond repo rate and analyzes the influence degrees of different factors. Taking the representativeness and influence of different factors into account, this paper takes China’s inter-bank bond repo rate as the explaining variable, and conducts an empirical study on the influencing factors--Shibor, reserve requirement ratio, year growth rate of Ml and amount of IPO --five time series data sets in the period of 2007 to 2014. The empirical method used in this paper is VECM, which can make an effective combination in the long term equilibrium and short term fluctuation between variables. The empirical results show that all factors have a significant effect on the repo rate.Finally, this papers puts forward some suggestions on the development of China’s inter-bank bond repo trading market from the aspects of policy implementation and market reform.