CHINA INJECTED CASH into the financial system by offering medium-term loans, in the government’s latest effort to ensure the country’s banks have sufficient liquidity.

The People’s Bank of China (PBoC) added 950 billion yuan ($145 billion) of one-year cash via the medium-term lending facility (MLF) on Tuesday, more than offsetting the 600 billion yuan that matures in December. That’s the fifth straight month of net injections using the tool. It kept interest rates on the loans unchanged at 2.95%.

The need to buoy the amount of liquidity in the financial system has becoming more pressing after a spate of corporate defaults squeezed lending in China’s interbank market. As the PBoC seeks to stabilize the amount of debt in the economy, its policy of tapering stimulus has pushed up money-market rates. Higher borrowing costs spilled over to government bonds, which are on track for an eighth month of losses. That would be their longest losing streak in 13 years.

Demand for cash typically increases toward the end of the year, as banks withhold it for regulatory checks. This month, lenders also need another 2.4 trillion yuan to repay short-term interbank debt and buy newly issued government bonds.

“Banks are still under rather big funding pressure,” said Ming Ming, head of fixed-income research at Citic Securities Co. The move was not in conflict with the authorities’ plan to exit pandemic-related emergency measures, he added.

China’s money market rates declined following the MLF injection, with the benchmark seven-day repurchase rate sliding 6 basis points to 2.04% as of 10:38 a.m. local time. Futures on 10-year government bonds climbed 0.23%.

The economy strengthened in November, supported by strong demand from home and abroad, data released on Tuesday showed. The country’s industrial output rose 7% last month from a year earlier, in line with the median estimate in a Bloomberg survey of economists. Its retail sales expanded 5% in the period.

In its monetary policy report released last month, the PBoC said the macro leverage ratio will likely stabilize, following comments from a deputy governor earlier in the month that exiting emergency support measures was only “a matter of time” and “necessary.” A gauge tracking China’s level of debt has surged to 277% of the country’s gross domestic output, the highest since Bloomberg started compiling the data in 2014.

Government bonds have continued to retreat this month, even after the PBoC unexpectedly added 200 million yuan via the MLF at the end of November. The yield on China’s 10-year notes is still near the highest since May 2019.

The PBoC typically conducts MLF operations on or around 15th day of every month. Some 300 billion yuan of one-year funds matured on Dec. 7, and another 300 billion yuan will come due Dec. 16. Separately, the central bank on Tuesday drained a net 50 billion yuan in short-term funding by letting most of its seven-day reverse repurchase agreements mature. — Bloomberg