China Stops Pushing Up 1-Year PBOC Yield to Ease Fund Shortage

June 17 (Bloomberg) -- The People’s Bank of China sold one-year bills at an unchanged yield for the first time in three weeks, seeking to ease a shortage of funds and damp speculation of an imminent increase in benchmark interest rates.

The yield was 2.09 percent, following a combined increase of 0.17 percentage points in the previous two weekly sales. The yield on the central bank’s three-year bills also remained stable at 2.68 percent, after sliding for four consecutive sales.

“The stable one-year bill yield after a two-week gain signaled that the central bank doesn’t want to stir up expectations for an interest-rate increase,” said Jiang Chao, an analyst in Shanghai at Guotai Junan Securities Co., the nation’s largest brokerage by revenue. “Pauses in the three-year bill yield decline reflected tighter funding availability.”

Slower growth in China’s industrial output and accelerating inflation, as reflected in economic data for May, will cause a dilemma for central-bank policy makers, according to Jiang. The People’s Bank will seek to keep monetary policy stable and won’t raise interest rates in the third quarter, he predicted.

Industrial output rose 16.5 percent in May from a year earlier, the statistics bureau said last week, less than economists’ median forecast of 17 percent and compared with growth of 17.8 percent in the prior month. Consumer prices rose 3.1 percent from a year earlier last month, the quickest pace in 19 months.

Money-Market Rates

The seven-day repurchase rate, a measure of lending costs between banks, was fixed at 2.61 percent today by the National Interbank Funding Center at 11 a.m. in Shanghai, up from 2.47 percent a week ago. The averaged cost climbed to 2.6 percent this month from 1.9 percent in May.

Money-market rates have climbed as Agricultural Bank of China Ltd. prepares to raise at least $23 billion in the world’s largest initial public offering. Banks also gathered funds during a public holiday in the first three days of the week.

“Liquidity in China is likely to be tight as the markets open today after a three-day holiday,” Frances Cheung, a senior strategist at Credit Agricole CIB in Hong Kong, wrote in a note. The Agricultural Bank IPO “could potentially lock up trillions of yuan of funds, driving repo rates higher,” the note said.

The monetary authority offered 5 billion yuan ($732 million) of one-year notes and 18 billion yuan of securities due in three years at the auction today.

To contact the Bloomberg news staff on this story: Belinda Cao in Beijing at

To contact the editor responsible for this story: Sandy Hendry at