Bloomberg News

China Bonds Fall, Swaps Gain as Stock Rally Spurs Risk Appetite

October 17, 2011

Oct. 17 (Bloomberg) -- China’s government bonds fell as signs the nation’s economic growth is intact and Europe is making progress on containing its debt crisis sapped demand for the relative safety of sovereign debt.

Gross domestic product increased 9.3 percent from a year earlier, according to the median estimate of 22 economists in a Bloomberg News survey. That would be the ninth straight quarter that growth has exceeded 9 percent and follows a 9.5 percent gain in the previous three months. The data are due tomorrow.

“Risk appetite is back today, so normally equities benefit and bonds suffer,” said Frances Cheung, a Hong Kong-based strategist at Credit Agricole CIB.

The yield on the 3.99 percent government bonds due June 2021 rose four basis points, or 0.04 percentage point, to 3.81 percent, according to the Interbank Funding Center. That was the highest since Oct. 8. The Shanghai Composite Index gained 0.4 percent, after advancing 3.1 percent last week.

Group of 20 finance ministers and central bank officials reached some agreement during weekend talks in Paris on how to avoid a Greek default, bolster banks and curb contagion. They set an Oct. 23 summit of European leaders in Brussels as the deadline for the final plan to delivered.

The finance ministry sold 17.6 billion yuan ($2.8 billion) of three-year bonds today at a yield of 3.67 percent on behalf of local governments, according to a trader at a finance company that participates in the auctions. The ministry issued similar- maturity local government bonds at a yield of 4.01 percent on Aug. 22.

‘Risk to Downside’

The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, rose three basis points to 3.48 percent. It fell 28 basis points in the five days through Oct. 14. That was the sixth straight weekly drop in the rate, the longest stretch of declines since 2008.

“It’s only a technical rebound,” Cheung said. “I see risk to the downside.”

The seven-day repurchase rate, a gauge of funding availability in the financial system, rose 20 basis points to 3.35 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.

--Editors: Andrew Janes, Anil Varma

To contact Bloomberg News staff for this story: Kyoungwha Kim in Singapore at kkim19@bloomberg.net;

To contact the editor responsible for this story: Sandy Hendry at shendry@bloomberg.net


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