China Bond Yields Seen Testing New Lows as Growth Still Subdued

  • Inflation data Wednesday show price gains below govt target
  • Regulator warns asset managers on bond risks: newspaper report

China’s government bond yields will test new lows as the economy still shows few signs of recovery after the central bank’s spate of monetary-easing measures, according to Guotai Junan Securities Co.

The 10-year yield rose two basis points to 3.03 percent as of 4:30 p.m. in Shanghai, National Interbank Funding Center prices show, five basis points off a six-year low reached on Oct. 27. While inflation edged up in November, it is still half of the government’s 2015 target, suggesting there’s room for further stimulus to boost spending. Exports have contracted for five straight months.

“The economy is still signaling it remains in the downtrend,” analysts led by Shanghai-based Xu Hanfei at Guotai Junan, the nation’s second-largest brokerage by market value, wrote in a research note Wednesday. “The central bank continues to be under pressure to ease.”

The People’s Bank of China has lowered the benchmark interest rate six times in 12 months and cut the amount of funds the biggest lenders must set aside as reserves four times in 2015. Consumer prices rose 1.5 percent in November from a year earlier, quickening from October’s 1.3 percent pace, and factory-gate prices contracted for a record 45th month, the government reported Wednesday. 

The Bloomberg China Local Sovereign Index of debt is extending an unprecedented seventh quarterly gain, rising 1.5 percent since the end of September. Chinese regulators warned some fund management companies about the risks related to payment, leverage, concentration and high valuations in bond-related investments, the 21st Century Business Herald reported Wednesday, citing an unidentified person.

In the money market, the seven-day repurchase rate fell three basis points to 2.29 percent, halting a three-day increase, according to a weighted average from the National Interbank Funding Center. The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, was steady at 2.31 percent.

— With assistance by Helen Sun

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