China 10-Year Yield Caps Biggest Weekly Advance in Six Months

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China’s 10-year sovereign bonds declined for a fourth week, with the yield rising the most in almost six months, as supply increased and the central bank pulled cash from the financial system.

Three provinces have issued a total of 76 billion yuan ($12.3 billion) of municipal notes since May 25, while another three will sell 91.3 billion yuan next week. The People’s Bank of China drained tens of billions of yuan recently by selling repurchase agreements to some financial institutions, according to two people familiar with the matter.

“The targeted repos do not mean the central bank will tighten in the short-term,” said Qu Qing, a Beijing-based analyst at Huachuang Securities Co. “But it created a floor for short-term rates. It will also have an impact on the long end.”

The yield on government bonds due April 2025 rose 17 basis points this week to 3.61 percent as of 4:30 p.m. in Shanghai, National Interbank Funding Center Prices show. That’s the biggest increase for a benchmark bond of similar maturity since the period ended Dec. 5, based on ChinaBond data. The yield climbed two basis points Friday.

The benchmark 10-year yield climbed 22 basis points in May, while that on one-year notes dropped 76 basis points, ChinaBond data show. The spread widened to 163 basis points, or 1.63 percentage points, the most since 2010.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, rose for a second week, adding 13 basis points to 2.43 percent, data compiled by Bloomberg show. It was little changed Friday and fell 11 basis points this month.

The seven-day repo rate, a gauge of interbank funding availability, fell two basis points from May 22 to 1.93 percent, according to a weighted average from the National Interbank Funding Center. It dropped one basis point Friday.