China Sovereign Bonds in Ninth Weekly Gain on Easing Speculation

  • More interest rate and reserve-ratio cuts seen by HSBC, BofA
  • Yields may have limited downside after slide: CFETS-ICAP

China’s 10-year sovereign bonds capped a ninth consecutive weekly advance on speculation the slowest economic growth in six years will prompt the central bank to ease monetary policy further.

Gross domestic product rose 6.9 percent in the three months through September from a year earlier, official data showed Monday, prompting HSBC Holdings Plc and Bank of America Corp. to predict more cuts in interest rates and lenders’ reserve requirements. Industrial production and fixed-asset investment figures trailed estimates, helping drive investors toward the relative safety of sovereign debt.

The yield on the notes due July 2025 fell seven basis points this week and rose one basis point on Friday to 3.07 percent as of 4:35 p.m. in Shanghai, according to National Interbank Funding Center prices. The yield has fallen 44 basis points over the past nine weeks.

“The economic fundamentals, ample liquidity and easing policies all are positive to the bond market,” said Frank Sun, a Shanghai-based bond analyst at CFETS-ICAP International Money Broking Co. “Given the slide in yields, further downsides could be limited.”

The People’s Bank of China drained a net 45 billion yuan ($7.1 billion) from the financial system via open-market operations this week, after pulling 70 billion yuan in the previous period. It granted 105.5 billion yuan of six-month loans to commercial lenders via its Medium-term Lending Facility on Wednesday.

Bond Quota

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, declined two basis points this week and one basis point on Friday to 2.39 percent. The seven-day repo rate, a gauge of interbank funding availability, was little changed Friday and rose one basis point from Oct. 16 to 2.38 percent, according to a weighted average from the National Interbank Funding Center.

China will increase the quota for a bond program aimed at boosting infrastructure construction to at least 600 billion yuan for the rest of the year from 300 billion yuan in order to shore up growth, according to people familiar with the matter, who asked not to be identified because the deliberations are private.

— With assistance by Helen Sun

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