Oct. 19 (Bloomberg) -- China’s yuan forwards rose to a 14- month high on speculation the economy’s recovery from a slump will prompt policy makers to let currency appreciation resume. Government bonds advanced.

The exchange rate has been kept at about 6.83 per dollar since July 2008, following a 21 percent gain in the previous three years, as the government favored a stable currency to help exporters weather a global recession. Data due Oct. 22 will show the economy expanded 9 percent in the third quarter, the fastest pace since September 2008, according to the median estimate of economists surveyed by Bloomberg.

“The good GDP data may strengthen investors’ expectations that the yuan will rise, but the reference rates show the central bank still doesn’t think it’s an appropriate time because exports are still weak,” said Liu Dongliang, a Shenzhen-based foreign-exchange analyst at China Merchants Bank Co., the country’s sixth-largest lender.

Twelve-month non-deliverable forwards rose 0.4 percent to 6.5940 per dollar as of 5:30 p.m. in Shanghai and earlier touched 6.5930, the highest since August 2008. The People’s Bank of China set its reference rate, around which the currency can trade by up to 0.5 percent, at 6.8275 today, little changed from 6.8290 on Sept. 30. The spot rate was also steady at 6.8267, according to the China Foreign Exchange Trade System.

Forwards are agreements to buy and sell assets at current prices for delivery at a specified time and date. Non- deliverable contracts are settled in dollars.

Bonds Gain

Exports fell 15.2 percent in September from a year earlier, the customs bureau said last week. That compared with a 23.4 percent slide in August and the 21 percent median estimate in a Bloomberg News survey of economists.

Liu predicted China won’t allow the yuan to rise until after the Chinese New Year holiday in February. The currency will strengthen 2.5 percent to 6.66 per dollar next year, according to the median estimate of analysts surveyed by Bloomberg News.

Government bonds gained, recouping some of last week’s decline, before the central bank’s weekly auction of one-year bills in open-market operations.

The securities declined 0.3 percent last week, the biggest loss since the period ended Sept. 11, according to a local- currency bond index compiled by HSBC Holdings Plc.

Bill Yields

One-year central bank bills yielded 1.98 percent at the end of last week, 22 basis points more than notes sold in the open-market operations, Chinabond data show. The People’s Bank of China will sell 45 billion yuan($6.6 billion) of one-year bills tomorrow, it said on its Web site today.

“Should the PBOC keep the yield stable tomorrow, bond yields may retreat,” said Chen Liang, a bond analyst at Guohai Securities Co. in Shenzhen. “The increase in yields was too fast last week.”

The yield on the 3.44 percent note due September 2019 dropped six basis points to 3.72 percent, and the price of the security climbed 0.49 per 100 yuan face amount to 97.70, according to the National Interbank Funding Center. A basis point is 0.01 percentage point.

--Judy Chen, Belinda Cao. Editors: James Regan, Simon Harvey

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at +86-21-6104-7047 or Xchen45@bloomberg.net; Belinda Cao in Beijing at +86-10-6535-2316 or lcao4@bloomberg.net

Last Updated: October 19, 2009 06:17 EDT