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PBOC Signals Resumption of Bill Sales as Capital Inflows Rise

China Swaps Decline Most Since 2008 as PBOC Eases Cash Squeeze
A man walks past the People's Bank of China (PBOC) headquarters in Beijing. Photographer: Tomohiro Ohsumi/Bloomberg

May 8 (Bloomberg) -- China’s central bank signaled it will resume sales of bills for the first time in 17 months as global funds pour money into the country to take advantage of the yuan’s rise.

The People’s Bank of China gauged demand for a sale of three-month bills tomorrow, according to two traders required to bid at the auctions. Yuan positions at Chinese financial institutions stemming from foreign-exchange transactions, a gauge of money flows, rose by 1.22 trillion yuan ($199 billion) in the first three months of 2013, more than four times as much as in the same period last year, central bank data showed. The yuan gained 1 percent this quarter.

“The central bank’s gauging of demand shows it will resume bill sales soon,” said Shi Lei, Beijing-based head of fixed-income research at Ping An Securities Co., a unit of the nation’s second-biggest insurance company. “Foreign capital inflows are too big. The central bank needs more tools to mop up excess liquidity.”

The one-year interest-rate swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, climbed four basis points, or 0.04 percentage point, to 3.29 percent at 10:14 a.m. in Shanghai, according to data compiled by Bloomberg.

The central bank last issued bills in December 2011. It also gauged demand for 28-day repurchase contracts today.

The seven-day repurchase rate, which measures interbank funding availability, dropped 19 basis points to 2.99 percent, according to a weighted average compiled by the National Interbank Funding Center.

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

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

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