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Higher yields set for Chinese bonds
Source: Bloomberg News |
September 16, 2011, Friday
|
Print Edition
Print Edition
INVESTORS are demanding higher yields than traders are predicting at auctions of Chinese bonds on speculation the government's efforts to fight inflation will stoke a cash crunch.
The Finance Ministry sold one-year debt to yield 3.90 percent on Wednesday, four basis points more than the median estimate of finance companies surveyed by Bloomberg News. In last week's sale, policy makers sold three-year notes at 3.91 percent, the highest since 2008 and six basis points more than traders predicted. United States Treasuries maturing in a year yield 0.08 percent, and three-year bonds pay 0.34 percent.
Chinese inflation, which slowed to 6.2 percent in August, from a three-year high of 6.5 percent, must be stemmed even with the threat of a global slowdown, Premier Wen Jiabao said on Wednesday. Traders of interest-rate swaps are betting borrowing costs will be raised once more in the next year, after five increases in the past 12 months. China has also expanded the amount banks have to keep in reserve to include margin deposits.
"There is a very low probability that we will see a monetary policy makeover this year as inflation remains high," said Chen Jianheng, a bond analyst at China International Capital Corp in Beijing. "The market is expecting the cash shortage to return."
Banks are demanding near-record interest rates to lend to one another for six months or more, Shanghai interbank rates show. The Shibor rate on six-month yuan loans was 5.30 percent, after reaching 5.31 percent on July 14, the highest level since the daily fixing was introduced in October 2006. The equivalent cost to borrow dollars in London was 0.521 percent on Wednesday, the highest level since August 2010.
China should maintain prudent monetary policy for a long time and address the nation's negative real interest-rate problem, Li Daokui, a People's Bank of China adviser, said at the World Economic Forum in the northeastern city of Dalian on Wednesday.
Saving discouraged
The PBOC's benchmark one-year deposit rate stands at 3.5 percent following five hikes in the past 12 months, 270 basis points, or 2.7 percentage points, below the inflation rate, discouraging saving. Consumer-price gains will continue to abate, Li said.
The Asian Development Bank raised its projection for 2011 Chinese inflation to 5.3 percent from 4.6 percent, and trimmed its forecast for economic growth to 9.3 percent from 9.6 percent, according to a report released on Wednesday.
"We can't exclude the possibility of another interest-rate hike by the end of this year," said Huang Yanhong, a bond analyst in Nanjing at Bank of Nanjing Co, a lender partly owned by BNP Paribas SA. "After all, inflation is still quite high."
China's two-year interest-rate swaps that exchange the one-year official savings rate for a fixed payment have risen eight basis points to 3.6250 percent since the central bank last raised borrowing costs on July 6.
Buyers of the swaps receive the deposit rate for one year, after which the floating payment is reset for the second year at the prevailing deposit rate. The current level shows traders are betting interest rates will be raised one more time by a quarter of a percentage point in the coming year.
While Chinese banks will have to set aside more cash in the next six months to meet the expanded reserve-requirement ratio, policymakers may also use debt sales to absorb capital, said China International's Chen. The central bank sold more than 20 billion yuan of additional bills to lenders including the Industrial and Commercial Bank of China Ltd after they were judged to have lent excessively, the Beijing News reported on Tuesday, citing an unidentified person.
Strengthening yuan
The Finance Ministry sold 32.51 billion yuan (US$5.1 billion) of one-year notes on Wednesday and 30 billion yuan of the three-year debt last week.
The yuan added 0.12 percent to 6.3886 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency has risen 3.3 percent versus the dollar in 2011 and touched a 17-year high of 6.3705 on August 30.
Five-year credit-default swaps on China's sovereign bonds climbed one basis point to 131 basis points on Wednesday, according to CMA, which is owned by the CME Group Inc and compiles prices quoted by dealers in the privately negotiated market. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
Demand for bonds will wane this month as the amount of available cash declines, according to Guo Caomin, an analyst at Industrial Bank Co in Shanghai.
"The market expects cash supply will drop a lot at the end of the month as banks hoard funds to meet quarter-end capital or loan-to-deposit requirements," Guo said.
Major lenders' reserve-requirement ratios were raised to a record 21.5 percent from 17 percent in the past year, with the most recent increase taking effect on June 20.
Russia's central bank unexpectedly cut the rate charged on repurchase loans and boosted its deposit rate on Wednesday in a bid to increase the amount of cash on the market as falling oil prices slow the economy of the world's largest energy exporter. Brazilian policymakers surprised the market on August 31 by cutting the target Selic rate, the Brazilian central bank's overnight rate, for the first time since 2009 to safeguard the country's economy against a global slowdown.
China's seven-day repurchase rate, a gauge of liquidity in the financial system, averaged 4.48 percent this quarter, based on daily fixings by the National Interbank Funding Center. That compares with 4.16 percent in the previous three months and 2.09 percent in the year-earlier quarter. The rate climbed six basis points to 3.35 percent yesterday.
The Finance Ministry sold one-year debt to yield 3.90 percent on Wednesday, four basis points more than the median estimate of finance companies surveyed by Bloomberg News. In last week's sale, policy makers sold three-year notes at 3.91 percent, the highest since 2008 and six basis points more than traders predicted. United States Treasuries maturing in a year yield 0.08 percent, and three-year bonds pay 0.34 percent.
Chinese inflation, which slowed to 6.2 percent in August, from a three-year high of 6.5 percent, must be stemmed even with the threat of a global slowdown, Premier Wen Jiabao said on Wednesday. Traders of interest-rate swaps are betting borrowing costs will be raised once more in the next year, after five increases in the past 12 months. China has also expanded the amount banks have to keep in reserve to include margin deposits.
"There is a very low probability that we will see a monetary policy makeover this year as inflation remains high," said Chen Jianheng, a bond analyst at China International Capital Corp in Beijing. "The market is expecting the cash shortage to return."
Banks are demanding near-record interest rates to lend to one another for six months or more, Shanghai interbank rates show. The Shibor rate on six-month yuan loans was 5.30 percent, after reaching 5.31 percent on July 14, the highest level since the daily fixing was introduced in October 2006. The equivalent cost to borrow dollars in London was 0.521 percent on Wednesday, the highest level since August 2010.
China should maintain prudent monetary policy for a long time and address the nation's negative real interest-rate problem, Li Daokui, a People's Bank of China adviser, said at the World Economic Forum in the northeastern city of Dalian on Wednesday.
Saving discouraged
The PBOC's benchmark one-year deposit rate stands at 3.5 percent following five hikes in the past 12 months, 270 basis points, or 2.7 percentage points, below the inflation rate, discouraging saving. Consumer-price gains will continue to abate, Li said.
The Asian Development Bank raised its projection for 2011 Chinese inflation to 5.3 percent from 4.6 percent, and trimmed its forecast for economic growth to 9.3 percent from 9.6 percent, according to a report released on Wednesday.
"We can't exclude the possibility of another interest-rate hike by the end of this year," said Huang Yanhong, a bond analyst in Nanjing at Bank of Nanjing Co, a lender partly owned by BNP Paribas SA. "After all, inflation is still quite high."
China's two-year interest-rate swaps that exchange the one-year official savings rate for a fixed payment have risen eight basis points to 3.6250 percent since the central bank last raised borrowing costs on July 6.
Buyers of the swaps receive the deposit rate for one year, after which the floating payment is reset for the second year at the prevailing deposit rate. The current level shows traders are betting interest rates will be raised one more time by a quarter of a percentage point in the coming year.
While Chinese banks will have to set aside more cash in the next six months to meet the expanded reserve-requirement ratio, policymakers may also use debt sales to absorb capital, said China International's Chen. The central bank sold more than 20 billion yuan of additional bills to lenders including the Industrial and Commercial Bank of China Ltd after they were judged to have lent excessively, the Beijing News reported on Tuesday, citing an unidentified person.
Strengthening yuan
The Finance Ministry sold 32.51 billion yuan (US$5.1 billion) of one-year notes on Wednesday and 30 billion yuan of the three-year debt last week.
The yuan added 0.12 percent to 6.3886 per dollar in Shanghai, according to the China Foreign Exchange Trade System. The currency has risen 3.3 percent versus the dollar in 2011 and touched a 17-year high of 6.3705 on August 30.
Five-year credit-default swaps on China's sovereign bonds climbed one basis point to 131 basis points on Wednesday, according to CMA, which is owned by the CME Group Inc and compiles prices quoted by dealers in the privately negotiated market. The contracts pay the buyer face value in exchange for the underlying securities or the cash equivalent should a government or company fail to adhere to its debt agreements.
Demand for bonds will wane this month as the amount of available cash declines, according to Guo Caomin, an analyst at Industrial Bank Co in Shanghai.
"The market expects cash supply will drop a lot at the end of the month as banks hoard funds to meet quarter-end capital or loan-to-deposit requirements," Guo said.
Major lenders' reserve-requirement ratios were raised to a record 21.5 percent from 17 percent in the past year, with the most recent increase taking effect on June 20.
Russia's central bank unexpectedly cut the rate charged on repurchase loans and boosted its deposit rate on Wednesday in a bid to increase the amount of cash on the market as falling oil prices slow the economy of the world's largest energy exporter. Brazilian policymakers surprised the market on August 31 by cutting the target Selic rate, the Brazilian central bank's overnight rate, for the first time since 2009 to safeguard the country's economy against a global slowdown.
China's seven-day repurchase rate, a gauge of liquidity in the financial system, averaged 4.48 percent this quarter, based on daily fixings by the National Interbank Funding Center. That compares with 4.16 percent in the previous three months and 2.09 percent in the year-earlier quarter. The rate climbed six basis points to 3.35 percent yesterday.
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