China’s government bonds rebounded as a funding shortage eased amid speculation a stock-market rout will boost demand for safer assets.
The notes fell on Wednesday as share-trading curbs meant some money managers were forced to liquidate positions in the debt market to meet demand for cash. The Shanghai Composite Index, which has lost 27 percent in the past month, rallied by the most since 2009 on Thursday. About 600 stocks rose by the daily 10 percent limit on the benchmark index. Another 1,439 companies were halted on mainland exchanges, locking sellers out of 50 percent of the market.
“Some institutions’ forced liquidation was the reason for yesterday’s selloff,” said Chen Kang, a Shanghai-based analyst at SWS Research Co., a unit of China’s second-largest listed brokerage. “This could be a short-term factor that’s worth watching, but we believe liquidity risk in the bond market is still small. As risk appetite has dropped significantly after the stock slump, opportunities for bonds are coming.”
The yield on the notes due April 2025 fell three basis points to 3.47 percent as of 4:30 p.m. in Shanghai, after rising eight basis points on Wednesday, according to data from the National Interbank Funding Center.
The People’s Bank of China sold 35 billion yuan ($5.6 billion) of seven-day reverse-repurchase agreements at 2.5 percent on Thursday, according to a statement on its website. That matched last week’s sales and resulted in a net neutral position this week.
The PBOC has offered loans through a re-lending facility to China Securities Finance Corp., and allowed the company to sell short-term notes in the interbank market, the official Xinhua News Agency reported on Weibo, citing the central bank. China Securities Finance is the only institution that provides margin financing loan services.
The seven-day repo rate, a gauge of interbank funding availability, fell one basis point to 2.52 percent, a weighted average from the National Interbank Funding Center shows.
Consumer prices rose 1.4 percent last month from a year earlier, according to data from the National Bureau of Statistics. That compared with the 1.3 percent median estimate in a Bloomberg survey and the 1.2 percent increase in May. The producer-price index fell 4.8 percent.
The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, fell two basis points to 2.46 percent.
— With assistance by Helen Sun