Bloomberg News

China’s Central Bank Sells Bills at Lower Rate for Second Week

November 15, 2011

Nov. 15 (Bloomberg) -- China’s central bank sold one-year bills at a lower rate for a second week, pushing government bond yields lower on speculation policy makers will keep pumping cash into the economy.

The People’s Bank of China issued the bills at 3.4875 percent, beneath its benchmark deposit rate for the first time since January and compared with 3.5733 percent at a Nov. 8 sale, according to a trader at a primary dealer required to bid at the auctions. The monetary authority today issued 52 billion yuan ($8.2 billion) of the securities, the most in six months.

“That’s one of the central bank’s fine-tuning measures,” said Guo Caomin, a bond analyst at Industrial Bank Co. In Shanghai. “The central bank wants to curb demand for one-year bills and ensure capital injections.”

The yield on 3.26 percent government bonds due June 2014 fell two basis points, or 0.02 percentage point, to 3.10 percent in Shanghai, according to the Interbank Funding Centre.

The seven-day repurchase rate, a gauge of funding availability in the financial system, rose one basis points to 3.32 percent in Shanghai, according to a weighted average compiled by the National Interbank Funding Center.

The lower yield may not mean “an imminent cut in benchmark interest rates but we are one step closer,” Wee Khoon Chong, a strategist at Societe Generale in Hong Kong, wrote in a note today. “What this shows is that the PBOC is not fighting market pricing for a cut, therefore an indirect acknowledgement of possible easing ahead.”

Easing Moves

Premier Wen Jiabao said last month that the government will adjust policy as needed, fueling speculation two years of monetary tightening will be unwound. The central bank pumped a net 67 billion yuan ($11 billion) of capital into the banking system last week, a second weekly injection. Lending jumped by more than analysts forecast in October, signaling the government may be loosening loan quotas, data released Nov. 11 showed.

Li Daokui, a central bank adviser, said Nov. 4 economic growth may cool to 8.5 percent next year, which would be the slowest pace in a decade, and inflation may moderate to 2.8 percent on reduced pressure from food and grain prices.

Expansion cooled to 9.4 percent in the first nine months of this year, from 10.4 percent in 2010, official figures show. Consumer prices increased 5.5 percent in October from a year earlier, the least since May.

The one-year swap rate, the fixed cost to receive the seven-day repurchase rate, slid 53 basis points this month and was up four basis points at 3.06 percent today.

“This is a clear sign of monetary easing, with the central bank trying to push money market rates down,” said Dariusz Kowalczyk, a senior strategist at Credit Agricole CIB in Hong Kong. “We expect the trend to continue, with gradually lower bill yields and money-market rates.”

Shanghai sold 3.6 billion yuan of three-year notes at 3.10 percent and 3.5 billion yuan of five-year securities at 3.30 percent, according to two separate statements posted on the Chinese government bond clearing house’s website today.

--Kyoungwha Kim and Judy Chen. Editors: Sandy Hendry, James Regan

To contact Bloomberg News staff for this story: Kyoungwha Kim in Singapore at; Judy Chen in Shanghai at

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

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