China's Bonds Complete Worst Week Since May as PBOC Seen on Hold

  • Investors taking profits after rally: Huachuang Securities
  • Interest-rate swaps increase for first week in a month

China’s 10-year sovereign bonds capped the biggest weekly drop in five months on speculation investors are taking profits amid signs the central bank is done cutting borrowing costs for now.

The People’s Bank of China has lowered benchmark deposit and lending rates six times since November and reduced lenders’ reserve ratios in an attempt to spur a slowing economy. The monetary authority will leave its policy rates unchanged through the end of next year, a Bloomberg survey showed last week. China’s local-currency sovereign debt rallied for five months through October and the 10-year yield fell to a six-year low last week.

The yield on the notes due October 2025 climbed six basis points from Oct. 30 and one basis point on Friday to 3.14 percent as of 4:34 p.m. in Shanghai, according to National Interbank Funding Center prices. That’s the biggest weekly increase for a benchmark of that maturity since May.

“Profit-taking will probably continue to be the theme through to the end of the year, especially for active traders,” said Qu Qing, a Beijing-based analyst at Huachuang Securities Co. “Given the slide in yields earlier, this may not be a good time to enter the market.”

The Ministry of Finance auctioned 22 billion yuan ($3.5 billion) of one-year securities at a yield of 2.41 percent on Friday, according to China Central Depository & Clearing Co. That compares with a yield of 2.43 percent in the secondary market on Thursday.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, rose four basis points this week and was little changed on Friday at 2.36 percent. The seven-day repo rate, a gauge of interbank funding availability, declined one basis point from a week ago and was steady Friday at 2.29 percent, a weighted average from the National Interbank Funding Center shows.

— With assistance by Helen Sun

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