China's Bonds Decline Amid Signs Economy Not as Weak as Thought

  • No collapse is nigh, according to quarterly Beige Book
  • Stocks rout doesn't reflect wider economy, says top diplomat

China’s sovereign bonds dropped as signs Asia’s largest economy isn’t as weak as it may look damped expectations for another interest-rate cut.

“No collapse is nigh” in the aftermath of the stock-market plunge and currency devaluation, according to the third-quarter China Beige Book published Monday by New York-based CBB International. The equities rout isn’t a reflection of the nation’s health, Yang Jiechi, China’s top diplomat, said in a Sept. 9 interview published Monday. The central bank has cut interest rates five times since November in an attempt to spur an economy that’s forecast to expand at the slowest pace since 1990 this year.

“The risk of a further sharp fall in China’s economy has reduced and hence affected the expectations on the interest-rate outlook,” Chen Kang, a fixed-income analyst at SWS Research Co. in Shanghai wrote in a research note. “The central bank still prefers a stable market.”

The yield on government bonds due May 2020 rose one basis point to 3.17 percent in Shanghai, after touching a three-week high earlier, according to Chinabond data. The yield on the notes due July 2025 climbed one basis point to 3.34 percent. The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, increased two basis points to 2.48 percent.

The Ministry of Finance sold 26 billion yuan ($4.1 billion) of 20-year debt at 3.74 percent in a twice-a-year auction on Monday. The coupon rate offered was the lowest since 2006, according to data compiled by Bloomberg.

A preliminary Purchasing Managers’ Index for manufacturing will rise to 47.5 for September from 47.3 in August, according to the median estimate in a Bloomberg survey before data due Wednesday. Fifty is the dividing line between expansion and contraction.

The benchmark seven-day repo rate, a gauge of interbank funding availability, dropped one basis point to 2.37 percent, a weighted average from the National Interbank Funding Center shows.

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