Nov. 13 (Bloomberg) -- The yield on China's three-month central bank bills tumbled 80 basis points today, the most this year, as investors bet policy makers will add to the three interest-rate cuts announced in the past two months.

The People's Bank of China sold 10 billion yuan ($1.5 billion) of the bills at an open-market auction today at a yield of 2.0156 percent, compared with a yield of 2.8275 percent at the last sale two weeks ago.

The bank's one-year bills yielded 2.2 percent in trading between banks today, 23 basis points less than yesterday, according to rates compiled by the nation's biggest debt clearing house. A basis point is 0.01 percentage point.

``There is strong speculation in the market that there will be further rate cuts, it's just a matter of how soon,'' said Fan Xiulan, a Beijing-based fixed-income analyst at BOC International Holdings, the investment banking arm of Bank of China Ltd. ``Mutual funds are scrambling for fixed-income products, no matter how low the yields are.''

China's central bank has switched to a ``moderately loose'' monetary policy as the nation's economy grew the slowest in five years. It has cut interest rates three times in two months, most recently on Oct. 29, reducing the one-year lending rate by 0.81 percentage point to 6.66 percent.

Since Oct. 27, it also reduced sales of three-month and one-year bills to every other week, from a weekly basis, to ``ensure ample liquidity'' in the market. It conducts auctions of such bills in order to drain excess yuan from the financial system caused by inflows of foreign currency, a process known as sterilization.

The PBOC may cut the rates more aggressively, slashing 54 basis points one time, said Nie Shuguang, bond analyst at Industrial Bank Co. in Shanghai.

The Export-Import Bank of China, following the morning bill sale, issued 14.77 billion yuan of five-year bonds at a yield of 2.6 percent, lower than the 2.78 percent median estimate in a Bloomberg News survey yesterday.

To contact the reporter on this story: Belinda Cao in Beijing at lcao4@bloomberg.net

Last Updated: November 13, 2008 05:10 EST