China's Bonds Rise as Slower Inflation Renews Easing Speculation

Updated on
  • Market likely to stabilize after steep loss: Guotai Junan
  • Interest-rate swaps decline for second consecutive day

China’s 10-year bonds rose for a second day as slowing inflation and disappointing trade data spurred speculation the central bank isn’t done with monetary easing to revive the economy.

Consumer-price gains slowed in October, a report showed Tuesday, following exports and imports figures issued at the weekend that missed estimates. The numbers helped stem a decline in the debt over the past two weeks that had been driven by the prospect of a resumption in initial public share offerings and signs the People’s Bank of China would pause after six interest-rate cuts in the past year.

The yield on the notes maturing in 2025 fell four basis point to 3.15 percent in Shanghai, following a seven basis-point drop on Tuesday, according to National Interbank Funding Center prices. The yield had risen 22 basis points over the previous two weeks.

“The pressure for a correction has largely been released,” said Xu Hanfei, a bond analyst at Guotai Junan Securities Co. in Shanghai. “The steep loss in a relatively short period means the market will probably be able to stabilize at the current level, as data shows the real economy continues to be under pressure.”

China’s industrial output rose 5.6 percent in October, matching the pace in March that was the weakest since 2008, according to data issued on Wednesday.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, fell one basis point to 2.39 percent, following a two basis-point drop on Tuesday.

Volatile Yields

The restart of IPOs, a rebounding equities market, and the prospect of a U.S. interest-rate increase will probably keep bond yields volatile in the near term, David Qu, a rates strategist at Australia & New Zealand Banking Group Ltd. in Shanghai, wrote in a research note released Monday. The market still looks well supported in the medium to long term on slow growth, soft inflation and the PBOC’s easing bias, he said.

The seven-day repo rate, a gauge of interbank funding availability, dropped two basis points to 2.28 percent, a weighted average from the National Interbank Funding Center shows.

(An earlier version of this story corrected the direction of the yield move on Tuesday in the third paragraph.)

— With assistance by Helen Sun

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