China Bonds Rally Most in Five Months on Easing Bets

  • Ten-year government yield falls to lowest since June 2009
  • Bond futures also climb in biggest gain in four months

China’s sovereign bonds rallied, with the 10-year yield falling the most in more than five months, on speculation the central bank will lower banks’ reserve requirements again to bolster growth in Asia’s biggest economy.

The yield declined nine basis points to 3.15 percent in Shanghai, according to prices from the National Interbank Funding Center. That’s the biggest drop since April 20 and the lowest level for a benchmark of that maturity since June 2009, Chinabond data show. Futures for fixed-income securities also advanced.

The People’s Bank of China has cut the amount of cash lenders must set aside as reserves three times this year and reduced interest rates five times since November, as the economy heads for its weakest annual expansion in more than two decades. Policy makers will lower the reserve ratio to 17.5 percent in the fourth quarter from 18 percent now, according to a Bloomberg survey.

“People are still not optimistic about the economy,” said Huang Hai, Beijing-based deputy head of research at SDIC CGOG Futures Co., a unit of State Development & Investment Corp. “Speculation that the government will continue to act to counter the slowdown weighed on bond yields.”

The most-active 10-year bond futures climbed 0.76 to 97.99, rising by the most since June 16, data from China Financial Futures Exchange show. Speculation the PBOC will cut banks’ reserve ratios at the weekend may be behind those gains, said Huachuang Securities analyst Qu Qing.

If stimulus measures aren’t strong enough to stem the economic slowdown, yields on longer-term bonds will continue to offer risk-haven value, Li Qilin, a Beijing-based analyst at Minsheng Securities Co., wrote in a note Friday.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, was steady on Friday and for the week at 2.46 percent. The repo rate rose five basis points to 2.41 percent to close at a two-week high, a weighted average from the National Interbank Funding Center shows.

— With assistance by Helen Sun

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