China's Bonds Post Weekly Gain on Rate Cut; Yuan Little Changed
Source: bloomberg Date: 2008-11-07
Oct. 31 (Bloomberg) -- China's government bonds advanced this week after the central bank cut interest rates for the third time in two months to spur economic growth.
Local bonds have risen 0.4 percent this week and 2.5 percent for the month, making their performance the third best in Asia this year, according to a local-currency debt index compiled by HSBC Holdings Plc. That compares with a loss of 2 percent last year, the index showed. The notes also gained after the central bank switched to bi-weekly auctions of one-year bills, skipping this week's sale.
The rally this week was ``driven both by the rate cut and the news of reduction in supply of the PBOC bills,'' said Gao Zhanjun, a fixed-income analyst with Citic Securities Co. in Beijing. ``The rising track of the debt market won't change in the short term as there's no big change in the macroeconomic conditions.''
The yield on the 4.23 percent government note due August 2015 dropped 24 basis points this week to 2.92 percent on the China Interbank Bond Market, according to data compiled by the nation's biggest clearing house. The price of the security climbed to 107.95 per 100 yuan face amount. A basis point is 0.01 percentage point.
The People's Bank of China lowered one-year lending and deposit rates by 0.27 percentage point on Oct. 29 to prevent the global financial crisis from hurting the local economy.
Central bank bills due in a year yielded 2.95 percent, down 21 basis points for the week, the debt clearing house data showed. They still yielded 4 basis points more than three-year PBOC bills, forming a so-called inverted yield curve.
The yield on one-year PBOC bills may drop to 2 percent by the end of the year on further reductions in interest rates, said He Xin, a bond analyst at Shenzhen-based China Jianyin Investment Securities Co.
Yuan Little Changed
China's yuan was little changed against the dollar on speculation the government will aim to keep the currency trading within a narrow range to support exports and combat an economic slowdown.
The yuan's exchange rate is not the cause of the U.S. trade deficit, Chinese Foreign Ministry spokeswoman Jiang Yu said yesterday, after Barack Obama, the Democratic candidate for the U.S. presidency, urged China to change its currency policy. The Chinese currency fell versus the dollar in the last two months, after gaining every month but one since a dollar peg was scrapped in July 2005.
Trading in Range
``The yuan will remain stable as policy makers are focusing on shoring up the economy and aiding exporters,'' said Wen Li, a Beijing-based dealer at Bank of China Ltd., the country's biggest foreign-exchange trader. ``The currency will stay mostly in the range between 6.82 and 6.85 through the rest of this year.''
The yuan closed at 6.8395 per dollar as of 5:30 p.m. in Shanghai, from 6.8380 yesterday and 6.8485 at the end of last month, according to the China Foreign Exchange Trade System. It has gained 0.2 percent since the end of June, after strengthening 6.6 percent in the first half.
``I hope the U.S. can expand its exports to China and reduce barriers to trade and investment,'' Jiang told reporters yesterday at a weekly briefing in Beijing. ``We believe this will help the U.S. reduce its trade deficit.''
Obama called on China to rely less on exports, linking its trade surplus with ``manipulation'' of the yuan's value, according to a letter dated Oct. 24 released by a U.S. textile industry group.
China, the world's second-biggest goods exporter, saw its trade surplus drop 3 percent to $180 billion in the first nine months as shipments to the U.S. and Europe cooled. The nation's economy grew 9 percent in the third quarter, the slowest pace in five years.
