China Bonds Snap Declines as Inflation Slows More Than Forecast

  • Concerns over a shift of money flows to equities persist
  • Yield on 10-year notes retreats from a one-month high

Chinese inflation data offered some respite to the nation’s bond investors, halting a selloff that pushed the 10-year yield to the highest level in a month.

Sovereign debt is losing money in November for the first time in six months as funds switch into equities. The benchmark Shanghai Composite Index of stocks entered a bull market with surging turnover and prospects for bonds grew worse in the past week as the securities regulator said new share sales will be allowed to resume this year. Consumer prices increased 1.3 percent from a year earlier in October, the smallest gain since May and less than the 1.5 percent forecast in a Bloomberg survey, a report showed Tuesday.

The yield on government debt due October 2025 fell seven basis points to 3.18 percent as of 4:30 p.m. in Shanghai, according to National Interbank Funding Center prices. The benchmark 10-year yield increased eight basis points on Monday to 3.21 percent, ChinaBond data show, and the Bloomberg China Local Sovereign Bond Index fell by the most in almost three months.

“Today’s inflation data provided some temporary relief to the market following yesterday’s tumble,” said Zhang Guoyu, a Shanghai-based bond analyst at Tebon Securities Co. “The impact of IPO resumptions and a likely U.S. interest-rate increase will continue to weigh on sentiment for some time.”

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, fell three basis points to 2.39 percent. The seven-day repo rate, a gauge of interbank funding availability, gained one basis point to 2.30 percent, a weighted average from the National Interbank Funding Center shows.

The People’s Bank of China offered 10 billion yuan ($1.6 billion) of seven-day reverse-repurchase agreements at 2.25 percent in Tuesday’s open-market operations. The size and terms have been the same in each of the five auction windows since the central bank’s most recent interest-rate cut was announced on Oct. 23. The authority has lowered its benchmark rates six times in the past year.

— With assistance by Helen Sun

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