China Sovereign Bonds Decline as Month’s Rally Deemed Excessive

China’s sovereign bonds fell, pushing the 10-year yield to a one-week high, as traders deemed this month’s rally as excessive.

The yield on the 4.13 percent notes due September 2024 advanced seven basis points to 3.65 percent as of 4:30 p.m. in Shanghai, according to data from the National Interbank Funding Center. That benchmark 10-year sovereign yield has fallen 20 basis points this month and one percentage point this year, ChinaBond data shows.

Industrial output rose 7.7 percent in October from a year earlier, trailing a median estimate of 8 percent in a Bloomberg survey, data from the statistics bureau showed today. The People’s Bank of China is said to be gauging city commercial banks’ demand for cash injections to support small businesses, according to a government official familiar with the matter.

“Given the strong rally this year, institutions are under pressure to reap in profits,” said Wang Ming, a Shanghai-based marketing director at Shanghai Yaozhi Asset Management LLP. “So the market shrugged off the weaker-than-expected data and liquidity injection news.”

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, increased for a third day, rising six basis points, or 0.06 percentage point, to 3.06 percent, according to data compiled by Bloomberg. That was the biggest increase since Oct. 22.

The People’s Bank of China sold 20 billion yuan ($3.3 billion) of 14-day repurchase agreements today at 3.4 percent. The central bank auctioned 40 billion yuan of repos this week, matching the amount matured, keeping the net position in open-market operations neutral for a fifth consecutive week.

The seven-day repo rate, a gauge of interbank funding availability, was steady at 3.14 percent, a weighted average compiled by the National Interbank Funding Center shows.

— With assistance by Helen Sun

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