China’s Bonds Rally for a Fourth Day as Growth Concern Persists

China’s 10-year bonds climbed for a fourth day, pushing the yield to a 14-month low, amid speculation the central bank will ease monetary policy further to support the economy.

Aggregate financing totaled 1.05 trillion yuan ($171 billion) last month, less than the median estimate of 1.15 trillion yuan in a Bloomberg News survey, according to data released today by the People’s Bank of China. Consumer prices rose the least in almost five years, while factory-gate prices fell the most since April, reports showed yesterday. Interest rates should be cut if the slowdown continues, according to a commentary in the China Securities Journal.

The yield on sovereign bonds due September 2024 fell five basis points to 3.90 percent as of 4:43 p.m. in Shanghai, prices from the National Interbank Funding Center show. The benchmark 10-year yield fell to the lowest level since August 2013 yesterday, according to ChinaBond data.

“Concerns over the growth outlook persist so the PBOC is expected to continue to adopt a loosening stance,” said Cao Yang, a Shanghai-based analyst at Shanghai Pudong Development Bank Co. “It will continue to work on lowering financing costs to support economic expansion.”

The PBOC this week cut the interest rate it pays lenders for 14-day repurchase agreements to 3.4 percent from 3.5 percent, the second reduction in a month. It sold 20 billion yuan of the contracts today and a similar amount in the Oct. 14 auction window, equal to the amount of 14-day repos and three-year bills that matured this week.

Swaps Drop

The cost of one-year swaps, the fixed payment to receive the floating seven-day repurchase rate, declined one basis point to 3.09 percent, data compiled by Bloomberg show. It fell to 3.04 percent earlier, the lowest in two years.

The seven-day repo rate, a gauge of interbank funding availability, declined three basis points, 0.03 percentage point, to 3.02 percent, according to a weighted average compiled by the National Interbank Funding Center.

New local currency loans totaled 857.2 billion yuan in September, more than the 750 billion yuan forecast in a Bloomberg survey, while M2 money supply expanded 12.9 percent, central bank data showed today.

— With assistance by Helen Sun

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