Post-Spring Festival Liquidity Outlook: Over 2.2 trillion yuan of reverse repos mature in the first week

Ahead of the Spring Festival, the central bank increased liquidity through various open market tools such as reverse repos and outright reverse repos to maintain ample liquidity. With a large number of reverse repos maturing after the holiday, market attention is focused on how liquidity will evolve and how the central bank will operate in the open market.

In the first week after the Spring Festival (February 24–28), over 2.2 trillion yuan of reverse repos will mature, including 852.4 billion yuan of 7-day reverse repos and 1.4 trillion yuan of 14-day reverse repos. Additionally, 300 billion yuan of medium-term lending facility (MLF) will also mature.

“Considering the significant liquidity pressure from maturing funds in the first week after the holiday, along with government bond payments, certificate of deposit maturities, and the pressure from new listings on the Beijing Stock Exchange, combined with tax period fund flows, liquidity gaps have also expanded notably,” said Caitong Securities in a research report. They noted that in January, the “strong deposits, weak loans” dynamic supporting banks’ liabilities weakened, and post-holiday liquidity gaps marginally increased.

Tianfeng Securities pointed out in their report that the tax period coincides with the post-holiday period this year. Historically, liquidity stratification tends to rise temporarily after the holiday, mainly because non-bank institutions may maintain leverage or hold bonds before the holiday. Under short-term financing maturity pressures after the holiday, non-bank funding costs may temporarily rise. This year, the post-holiday period will directly face tax-related fund flows, which may slow the pace of large banks’ liquidity improvement, potentially providing an opportunity for non-bank funding pressures to ease, or this may be delayed until the tax period fund flows are essentially completed.

The institution stated that this year’s Spring Festival holiday lasted nine days. Monitoring the pace of cash returning to the banking system is important; if it is relatively slow, it could increase supply-demand friction. Meanwhile, government bond issuance will increase, with three fixed-rate government bonds planned to be issued after the holiday, totaling 330 billion yuan; local government bonds are planned at 121.3 billion yuan, slightly lower than before the holiday, but the weighted average issuance term has risen to 21.76 years, the highest since the beginning of the year.

“The supporting factors include the central bank’s strong intention to maintain stability and the gradual acceleration of fiscal expenditures at the end of the month, especially the faster return of swapped bonds, which will supplement interbank liquidity,” Tianfeng Securities noted.

Dongwu Securities pointed out that after the structural tool “interest rate cuts” in mid-January 2026, the People’s Bank of China continued to increase liquidity across different maturities, maintaining a plentiful and loose liquidity environment. Going forward, bond trading will become normalized as an effective liquidity supplement. The 10-year government bond yield and other key interest rates are expected to remain within a narrow range amid ample liquidity. The jump in M1 growth has already signaled an improvement in economic activity. As low interest rates persist and reallocation of time deposits continues, the environment of loose liquidity will continue to favor the performance of risk assets.

(Source: The Paper)