Bloomberg News

China Bond Yield Drops Most in a Week on Easing Speculation

November 23, 2011

Nov. 23 (Bloomberg) -- China’s 10-year bond yield dropped the most in a week on speculation the central bank will ease monetary policy to counter a slowdown in the world’s second- biggest economy.

Manufacturing may contract this month by the most in three years, based on the preliminary findings of a purchasing managers survey released today by HSBC Holdings Plc and Markit Economics. The central bank cut reserve requirements for five rural credit cooperatives in the eastern province of Zhejiang, Market News International said, citing three unidentified people.

“The HSBC PMI number and the reserve-ratio cut report make the market believe that monetary policy easing will come earlier than expected,” said Guo Caomin, a bond analyst at Industrial Bank Co. in Shanghai.

The yield on the 3.94 percent government bond due January 2021 dropped three basis points to 3.64 percent as of 11:23 a.m. in Shanghai, the biggest fall since Nov. 10, according to the Interbank Funding Center. A basis point is 0.01 percentage point.

The seven-day repurchase rate, which measures interbank funding availability, dropped seven basis points to 4.34 percent, the first decline in seven days, according to a weighted average rate compiled by the National Interbank Funding Center.

The Ministry of Finance sold at least 28 billion yuan ($4.4 billion) of seven-year bonds at an average yield of 3.50 percent, according to a trader at a finance company that participates in government debt auctions. That compared with the 3.55 percent median estimate in a Bloomberg News survey and the 3.65 percent in a sale of similar maturing debt on Oct. 12. Today’s sale drew bids for 1.58 times the amount of debt on offer, down from 1.70 times at last month’s auction, according to the trader.

The one-year swap contract, the fixed cost needed to receive the floating seven-day repurchase rate, declined eight basis points to 3.05 percent, the biggest drop since Nov. 10, according to data compiled by Bloomberg.

--Judy Chen. Editors: James Regan, Sandy Hendry

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

%CNY

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


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