China’s Government Bond Yields Surge to Five-Year High

China’s government bond yields climbed to the highest level in five years as data that beat economists’ estimates damped demand for the relative safety of fixed-income securities.

The yield on 4.08 percent notes due 2023 jumped seven basis points to 4.16 percent as of 2:56 p.m. in Shanghai, according to prices from the Interbank Funding Center. That was the highest for a benchmark 10-year bond since August 2008.

The Ministry of Finance sold at least 30 billion yuan ($4.9 billion) of seven-year debt at 4.1219 percent today, according to a trader at a finance company that participates in government auctions, more than the 4.03 percent median estimate in a Bloomberg survey. Growth in industrial production, fixed-asset investment, exports and M2 money supply accelerated in August, official data showed this week, prompting economists at UBS AG and Deutsche Bank AG to raise their expansion forecasts.

“The economic data surprised the market and there has been a change of sentiment in the last couple of days,” said Chen Lei, an analyst at Guotai Junan Securities Co. in Shanghai. “The auction result was the highest since August 2008 for the seven-year debt, helping drive the 10-year yield in the secondary market and weighing on treasury futures.”

The most-actively traded December contract fell for a third day on the China Financial Futures Exchange to 93.606 from 93.846 yesterday. The Shanghai Composite Index rose to the highest level in three months.

‘Modestly Looser’

Industrial production gained 10.4 percent in August, the fastest pace in 17 months. Aggregate financing, the broadest measure of new credit almost doubled in August from the previous month to 1.57 trillion yuan, the People’s Bank of China said yesterday after the market closed, exceeding the 950 billion yuan median estimate of 10 analysts surveyed by Bloomberg News.

“August monetary conditions were modestly looser than they were in July which likely contributed to the rebound in sequential activity growth,” economists led by Yu Song at Goldman Sachs Group Inc. wrote in a report yesterday. “We expect monetary authorities to keep policy largely steady in the coming months.”

The seven-day repurchase rate, a gauge of funding availability in the banking system, fell for the first time in four days, losing 14 basis points, or 0.14 percentage point, to 3.49 percent, a weighted average compiled by the National Interbank Funding Center showed.

The cost of one-year interest rate swap contracts, the fixed payment to receive the floating seven-day repo rate, rose one basis point to 4.17 percent, data compiled by Bloomberg show.

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