China’s Key Money Rate Capped as Bonds Rebound From Two-Day Loss

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China’s benchmark money-market rate traded around 2.4 percent for a fifth day and one-year bonds rose, easing concern that a weaker yuan would trigger outflows.

The central bank said Thursday it will keep the currency stable at a reasonable level, after a surprise devaluation spurred the yuan’s biggest losses in two decades. There’s no basis for the depreciation to persist, Assistant Governor Zhang Xiaohui said Thursday at a briefing in Beijing. The PBOC added a net 5 billion yuan ($780 billion) to the banking system in open-market operations this week, compared with a net withdrawal of the same amount in the previous period.

The seven-day repurchase rate, a gauge of funding availability, has held in a 2.39 percent to 2.45 percent range this week in Shanghai, according to a weighted average from the National Interbank Funding Center. The yield on government notes due July 2016 fell six basis points to 2.34 percent, after rising 20 basis points in the past two days.

“The calmness in the interbank market so far showed there’s still flush liquidity” said Li Liuyang, chief financial market analyst at Bank of Tokyo-Mitsubishi UFJ (China) Ltd. in Shanghai. “We haven’t seen dollar demand tighten the market and the seven-day repo may continue to trade rangebound.”

Li said the PBOC is probably aiming to keep the repo rate in a 2 percent to 2.5 percent range and that the “impact from the currency market is very limited, if any.”

The yuan pared Thursday’s loss and closed down 0.19 percent at 6.3990 per dollar in onshore trading. It dropped as much as 0.9 percent earlier after the central bank cut its daily fixing for a third day.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, was little changed at 2.54 percent, data compiled by Bloomberg show. The 10-year bond yield fell two basis points to 3.53 percent.

Credit-default swaps protecting Chinese sovereign bonds against non-payment for five years dropped seven basis point to 100.5, after touching a two-year high of 107.5 Wednesday, according to CMA data.

— With assistance by Helen Sun

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