China's Bonds Extend Gains as Credit Suisse Predicts More Easing

  • Notes in longest rally in three months; yield at 2009 low
  • CS sees 75 basis points of cuts in lending rate next year

China’s 10-year bonds rose for a fifth day on speculation the central bank will further ease monetary policy after six interest-rate cuts failed to revive growth.

The notes posted the longest run of gains in almost three months, pushing the yield to its lowest level since 2009, after the People’s Bank of China reduced this year’s gross domestic product estimate to 6.9 percent from 7 percent, which would be the poorest showing in 25 years. The central economic work conference, which opened on Friday, will map out a plan for 2016 with the priority on structural reforms, according to the official Xinhua News Agency.

The yield on the securities due in October 2025 fell six basis points to 2.89 percent as of 5:44 p.m. in Shanghai, according to National Interbank Funding Center prices. As well as the round of rate cuts taken since November 2014, the PBOC has also lowered reserve-requirement ratios for lenders four times this year amid subdued trade and factory output.

"As the external trade and manufacturing sectors remain weak, we see continuation of the intensive monetary-policy easing," Koon How Heng, a foreign-exchange strategist at Credit Suisse Group AG’s private banking and wealth management unit in Singapore, wrote in a note. The central bank will lower the benchmark lending rate and the amount of cash banks must set aside as reserves by 75 basis points and 200 basis points, respectively, by the end of 2016 as it seeks to stabilize growth around 7 percent, he said.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, rose one basis point to 2.32 percent. The repo rate dropped three basis points to 2.32 percent, according to a weighted average from the National Interbank Funding Center.

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