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China bond yields up, inflation risk comments eyed

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  • Add time:2011/9/15 14:47:03
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SHANGHAI, Sept 28 -Chinesebondyields mostly rose on Monday after comments by the vice chairman of the National Development and Reform Commission reinforced views theeconomywas steadily improving and inflation risks were rising.

Liu Tienan, vice chairman of the National Development and Reform Commission, said on Monday thatChinawas confident it could overcome theeconomic crisis, but should guard against risks including inflation.

The comments echo similar ones made in recent weeks by Premier Wen Jiabao underscoring official concern over inflation.

But traders said the comments did not suggest any imminent shift towards a tighter monetary policy stance, fuelling concerns of an increasing risk to inflation in the longer term amid a strong economicrecovery.

Bondyields have edged up a few basis points in recent weeks because of signs that China may want to focus on addressing imbalances in the economy through fine-tuning ofgovernmentpolicies rather than broad-based tightening.

"There's unlikely to be a major change in rhetoric by thecentral bankto tighten liquidity especially before the third quarter economic data," said a trader at a mid-sized domesticbankin eastern China.

The statistics bureau said on Sunday industrial profits fell 10.6 percent in the first eight months from a year earlier, compared with the 22.9 percent decline in the previous survey, which covered the first five months of the year.

The indicative five-year government bond yield rose to a three-week high of 2.9095 percent bid on Monday from 2.9079 percent on Sunday, according to Reuters Reference Rates.

The bondmarketwas opened for a special session on Sunday ahead of an eight-day National Dayholidaythat begins on Thursday, marking the 60th anniversary of Communist rule.

In themoneymarket, liquidity continued to improve as China InternationalTravelService Corp's major IPO, which attracted 618 billionyuan($90.5 billion) in subscriptions, was returned to unsuccessful applicants.

That pushed the weighted average seven-day reporatedown to 1.5830 percent by midday from the previous days' close of 1.6097 percent.

Traders believe the repo rate may fall to 1.4 percent in the next day or so before the holidays, though keeping above the 1.2 to 1.4 percent range that confined it in late August.

Money market rates and bill yields have been volatile in recent days as a few domestic banks scrambled to record large amounts of interbank trades in a bid totopthe central bank's monthly league table rankings ahead of the National Day holidays.

The market is expected to grind to a halt on Tuesday or Wednesday ahead of the National Day holidays.

"The market may become more volatile before grounding to a sudden halt because of traffic controls before the holiday," said a trader at a securitiescompanyinShanghai.

The 90-day central bank bill yield which edged up 0.36 percent on Sunday, eased to 1.3287 percent on Monday from the previous day's 1.3319 percent.