1 minute to understand why the overnight interest rate is 50%!

If someone tells you,

And on October 31, 2023, a similar scene occurred in the interbank market.

Let's take 1 minute today to find out what this is all about

Depending on the trading venue, we can simply divide the bond market into 2 categories.

The market here refers to the stock exchange

Markets outside the stock exchange are referred to as over-the-counter markets and can continue to be divided into two categories.

Among them, the over-the-counter market is mainly for individual and small and medium-sized institutional investors.

The interbank market is mainly for financial institutions, including banks, insurance companies, securities companies, etc

In the interbank market, these institutions borrow from each other if they are short of money

The loan term can be long or short, such as 1 day, 7 days, 1 month, 1 year, etc.

If the interest rate on the borrowed funds is based on a period of 1 day, it is called the overnight interest rate.

Generally speaking, the market is well funded and liquid, and the overnight interest rate is low;

There is a lack of money in the market, and the liquidity is poor, and the interest rate is high

Overnight interest rates change depending on market supply and demand, but why is there a sudden spike in interest rates this time?

There are multiple factors that contribute to this.

For example, it just so happens that the supply of government bonds is concentrated, and the money of rich institutions such as banks is used to buy bonds

For another example, at the end of the month, market liquidity is prone to fluctuations, and some institutions will also encounter the pressure of month-end liquidity assessment

Therefore, various factors have caused the interbank market to suddenly be extremely tight, and some investors have misjudged after the financing is not smooth, which has also caused the overnight interest rate to soar

An overnight interest rate of 50% is very rare, but the financing of this high interest rate is only a small number of non-bank institutions and asset management products, which is relatively low

And with the month-end factor subsiding and the central bank pumping a lot of liquidity through open market operations, interest rates have returned to normal levels.

Well, that's all for today.