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China’s 10-Year Bond Yield Climbs on Signs of Economic Recovery

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Dec. 11 (Bloomberg) -- China’s 10-year government bonds fell as a signs of a recovery in the world’s second-largest economy damped demand for the safety of sovereign debt.

Industrial output and retail sales rose faster than economists estimated, official data showed Dec. 9. The People’s Bank of China offered 11 billion yuan ($1.8 billion) of seven-day reverse-repurchase agreements at a yield of 3.35 percent, according to a trader at a primary dealer required to bid at the auctions. The central bank also issued 70 billion yuan of 28-day contracts at 3.6 percent, the trader said.

“Investors appear to become more confident about a bottoming out in the economy,” said Frances Cheung, a Hong Kong-based strategist at Credit Agricole CIB.

The yield on 3.39 percent government bonds due August, 2022 increased four basis points, or 0.04 percentage point, to 3.57 percent in Shanghai, according to the National Interbank Funding Center.

Factory production in China climbed 10.1 percent in November from a year earlier and retail sales grew 14.9 percent, the biggest gains since March, government data show. Gross domestic product will increase 7.7 percent in the October-December period following a third-quarter gain of 7.4 percent, according to the median estimate in a Bloomberg survey.

China may have to cut lenders’ reserve ratio if next year’s economic growth trend isn’t “too stable,” Caijing magazine reported, citing Xu Nuojin, an official with the People’s Bank of China’s Statistics and Analysis Department.

The one-year swap rate, the fixed cost to receive the seven-day repo rate, decreased four basis points to 3.36 percent in Shanghai, according to data compiled by Bloomberg. The seven-day repurchase rate, a gauge of interbank funding availability, fell two basis points to 3.02 percent, according to a weighted average compiled by the National Interbank Funding Center.

To contact the reporter on this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net