Yuan Gains For Week on Speculation China Will Allow Greater Flexibility
Aug. 17 (Bloomberg) -- Linda Yueh, an economist at Oxford University, talks about China reducing its holdings of Treasuries and the country's relations with the U.S. China's holdings of long-term Treasuries fell in June for the first time in 15 months, dropping by $21.2 billion to $839.7 billion, a U.S. government report showed yesterday. Yueh speaks with Maryam Nemazee on Bloomberg Television's "Countdown." (Source: Bloomberg)
China’s yuan rose this week after a government report showed the current-account surplus increased in the second quarter, fueling speculation the central bank will allow greater flexibility in the currency.
The surplus increased 30 percent to $70.5 billion from the same period a year earlier, according to preliminary figures posted yesterday on the website of the State Administration of Foreign Exchange, the nation’s top currency regulator. The current account, the broadest measure of trade, dropped 8 percent to $124.2 billion in the first half, SAFE said. The yuan has strengthened 0.6 percent since the People’s Bank of China scrapped a two-year dollar peg on June 19.
“As the PBOC focuses on the current-account balance, the improvement may push them to accelerate yuan appreciation,” said Dariusz Kowalczyk, a Hong Kong-based senior economist at Credit Agricole.
The yuan climbed 0.1 percent this week to 6.7902 per dollar at the 5:30 p.m. close in Shanghai, according to the China Foreign Exchange Trade System. Twelve-month non-deliverable forwards strengthened 0.16 percent to 6.6788, reflecting bets the currency will advance 1.7 percent in a year, according to data compiled by Bloomberg.
The currency may rise to 6.73 by year-end, Kowalczyk predicted.
China should improve the yuan’s “elasticity,” Wang Xin, deputy head of the People’s Bank of China’s financial research institute, wrote in an article published on the website of the China Finance 40 Forum today.
‘Low’ Yields
Government bonds were little changed this week on concern about a slowing economy.
Industrial output gained 13.4 percent, the least in 11 months in July, the government reported on Aug. 11.
The 10-year yield has declined six basis points this month to 3.25 percent, according to an index compiled by Chinabond, the nation’s largest debt-clearing house. The yield fell to a one-year low of 3.17 percent on July 14.
“The bond market has been quiet this week without either good or bad news to stimulate moves,” said Wang Mingfeng, a fixed-income analyst with Citic Securities Co. in Beijing, China’s biggest listed brokerage. “Low yield levels leave little room for further declines and cooling economic data didn’t provide a basis for yields to move upward.”
Bond Sales
The yield on the 2.76 percent note due in July 2017 was at 2.88 percent, and the price of the security was 99.26 per 100 yuan face amount, according to the National Interbank Funding Center. A basis point is 0.01 percentage point.
Central Huijin Investment Co., the state company controlling China’s biggest banks, will auction as much as 54 billion yuan ($7.95 billion) of seven- and 20-year bonds next week, the first portion of total planned sales of 187.5 billion yuan, it said yesterday. The proceeds will be used for cash injections into five finance companies in which it holds stakes, it said.
The finance ministry will sell 19.5 billion yuan of three- year debt on behalf of provinces on Aug. 23, part of its plan for 200 billion yuan in bond issuance this year to raise funds for local governments.
“New bond sales will add pressure on the supply side next week,” Wang said.
--Judy Chen, Belinda Cao. Editors: Simon Harvey, Andrew Janes
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 +86-10-6649-7570 or lcao4@bloomberg.net
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