BEIJING - The People's Bank of China (PBOC), or the central bank, on Tuesday auctioned 26 billion yuan ($4.12 billion) of repurchase agreements (repo), the first such move in two months as liquidity improves after the Chinese lunar New Year holiday season.

Yield of the 28-day repos stood at 2.8 percent.

"Demand for cash has subdued after the holiday and the market's liquidity has eased remarkably due to the PBOC's pre-season operations," said Jiang Chao, chief bond analyst for Guotai Junan Securities.

Since the start of January, the PBOC has released money back to banks by suspending bill and repo issues, or even reverse repos operations.

"Everyone in the market is closely monitoring the central bank's moves," said Liu Junyu, a bond analyst with the China Merchants Bank. "The market is still divided on whether the PBOC will soon lower the bank reserve requirement ratio (RRR) to ease liquidity."

Compared with the pre-season squeeze, Chinese banks are now abundant with liquidity again, as suggested by the Shanghai Interbank Offered Rates (Shibor), which measures the cost of interbank borrowing as a key barometer of liquidity. The overnight Shibor stood at 2.7767 percent on Tuesday, compared with yield exceeding 8 percent one week before the Chinese lunar New Year.

The one-week and two-week Shibor also softened to 3.5 percent and 3.8 percent, respectively, from above 6 percent in the pre-season trading.