China’s Rate Drops for Third Day as 10-Year Yield Rises

China’s benchmark money-market rate declined for a third day as the central bank pumps in cash to the financial system.

The People’s Bank of China asked local lenders to submit orders for 28-day repurchase contracts as well as seven- and 14-day reverse repos, according to a trader at a primary dealer required to bid at the auctions. It also gauged demand for 91-day bills planned for this week after adding a net 33 billion yuan ($5.4 billion) to the market last week. Government bonds fell after official data showed consumer prices rose by more than economists predicted in September.

“The injections in open-market operations ensured cash supply and with rates dipping, the amount of reverse-repurchase contracts this week may drop,” said Zhang Guoyu, an analyst at Orient Futures Co. in Shanghai. “The higher-than-expected CPI boosted bond yields.”

The seven-day repurchase rate, a gauge of funding availability in the banking system, declined 43 basis points, or 0.43 percentage point, to 3.82 percent as of 4:30 p.m. in Shanghai, according to a weighted average compiled by the National Interbank Funding Center. That’s the biggest drop since Sept. 27.

The consumer-price index climbed 3.1 percent from a year earlier in September, China’s National Bureau of Statistics reported today. That compares with the 2.6 percent gain in August and the median estimate of 2.8 percent in a Bloomberg News survey.

Yield Gains

The yield on the 4.08 percent bonds due August 2023 rose five basis points to 4.1 percent, the highest level since Sept. 16, according to data from the Interbank Funding Center. The cost of the one-year interest-rate swap, the fixed payment to receive the floating seven-day repo rate, was little changed at 3.98 percent, according to data compiled by Bloomberg.

China’s banking regulator plans to set an upper debt limit for local governments, the 21st Century Business Herald reported on Oct. 12, without saying where it got the information. The nation’s auditing agency will submit a report to the cabinet in mid-October after a three-month nationwide audit, according to the article.

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