Bloomberg News

China PBOC Cuts 3-Year Bill Yield for 1st Time in 15 Months

October 19, 2011

(Adds analyst comment in third paragraph.)

Oct. 20 (Bloomberg) -- The People’s Bank of China lowered the yield on three-year bills for the first time in 15 months after inflation cooled in September.

The central bank sold 20 billion yuan ($3.1 billion) of the bills at 3.96 percent, compared with 3.97 percent on Oct. 13, according to a trader at a primary dealer required to bid at the auctions. The yield on three-month bills was unchanged at 3.1618 percent for an eighth auction, according to another trader who declined to be identified. Consumer prices climbed 6.1 percent last month from a year earlier following a 6.2 percent increase in August, the government reported on Oct. 14.

“There is so much demand for three-year bills that the central bank has to allow the yield to fall,” said Shi Lei, a bond analyst in Beijing at Ping An Securities Co., a unit of the nation’s second-biggest insurance company. “It also shows the central bank is turning a bit loose in controlling money-market rates as inflation trends down, but it doesn’t mean any benchmark interest-rate cut will follow.”

The yield on the 3.44 percent government notes due June 2016 dropped four basis points to 3.59 percent as of 10:37 a.m. in Shanghai, according to the Interbank Funding Center. A basis point is 0.01 percentage point.

Repurchase Rate

The one-year interest-rate swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, rose one basis point to 3.49 percent, according to data compiled by Bloomberg.

The monetary authority drained a net 22 billion yuan of capital from the financial system this week, according to Liu Junyu, a bond analyst in Shenzhen at China Merchants Bank Co., the nation’s sixth-biggest lender. The central bank issued 1 billion yuan of the three-month bills today.

“The withdrawal shows the central bank is intending to control liquidity mainly through open-market operations,” said Ping An’s Shi. “It’s still actively managing the total cash supply.”

Shi said the central bank may allow the yield on three-year bills to drop further next week.

The seven-day repurchase rate, which measures interbank funding availability, rose nine basis points to 3.46 percent, according to a weighted average rate compiled by the National Interbank Funding Center.

The central bank published in February a list of 50 primary dealers allowed to participate in open-market operations, including Industrial & Commercial Bank of China Ltd., Agricultural Bank of China Ltd., Bank of China Ltd., China Construction Bank Corp., China Citic Bank Corp., Industrial Bank Co. and Postal Savings Bank of China.

--Judy Chen. Editors: Ven Ram, James Regan

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at xchen45@bloomberg.net.

To contact the editor responsible for this story: James Regan at jregan19@bloomberg.net.


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