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China’s Bonds Climb After Premier Wen Signals Policy Adjustment

October 26, 2011

Oct. 26 (Bloomberg) -- China’s government bonds rose after Premier Wen Jiabao signaled that an easing of monetary policy was a possibility as the economic expansion moderates.

Officials will make adjustments at a “suitable time and by an appropriate degree” and will maintain “reasonable” growth in money supply, Wen said during a visit to the northern city of Tianjin, according to a statement published late yesterday on the government’s website. China hasn’t raised interest rates since July, after five increases in less than a year to curb inflation that’s exceeded the 2011 target every month.

“It’s definitely good news for the bond market,” said Pang Aihua, a fixed-income analyst in Beijing at China Citic Bank Co., a unit of China’s biggest state investment company. “The central bank may cut the reserve-requirement ratio by the end of this year. Yields on five-, seven- and 10-year bonds may drop 20 basis points this year at the most.”

The yield on the 3.83 percent security due January 2018 fell three basis points to 3.70 percent as of the close in Shanghai, the first decline in four days, according to the Interbank Funding Center.

The central bank didn’t seek offers today for a sale of three-year bills, suggesting there may not be a sale this week, according to traders at banks required to bid at such offerings. The securities were sold by the monetary authority last week and the week before.

“If the three-year bill sale is canceled this week, it may be a signal of some policy fine-tuning in liquidity management,” said Guo Caomin, a bond analyst at Industrial Bank Co. in Shanghai. “There is a small amount of bills and repurchase contracts maturing next month and in December.”

Slowing Growth

Consumer prices climbed 6.1 percent in September from a year earlier, following a 6.2 percent gain the previous month, the government reported on Oct. 14. Inflation reached 6.5 percent in July, the highest in three years. China’s economy grew 9.1 percent in the third quarter, the least since 2009, the statistics bureau said Oct. 18.

The seven-day repurchase rate, which measures interbank funding availability, rose 10 basis points, or 0.10 percentage point, to 4.11 percent, according to a weighted average rate compiled by the National Interbank Funding Center.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, gained two basis points to 3.65 percent, according to data compiled by Bloomberg.

--Judy Chen. Editors: Simon Harvey, Andrew Janes

To contact Bloomberg News staff for this story: Judy Chen in Shanghai at


To contact the editor responsible for this story: Sandy Hendry at

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