(Bloomberg) – China’s government bonds extended the recovery after the country’s central bank boosted short-term financial support.
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The benchmark 10-year memo yield marked the third consecutive day of decline, falling from 3 basis points to 1.84%. Paper futures rose by 1% in 2010, the highest since late December.
The profits came after the People’s Bank of China added a total of 973.2 billion yuan ($134.6 billion) via short-term policy loans over the past four days, ending its longest streak of drainage and injections since late January, adding a total of 973.2 billion yuan ($134.6 billion).
The supply of new cash has raised official concerns about risks from recent bond losses, which stemmed from both the PBOC’s efforts to protect the yuan and the Chinese stock gathering. Given the recent global retreat of the dollar, Beijing can afford to refocus on reducing borrowing costs to meet its ambitious annual economic growth targets and help investors absorb the surge in debt issuance.
“Continued injections of PBOCs will help prevent the sale of debt from worsening and restore confidence in bonds,” an analyst led by Liu Yu of Huaxi Securities wrote in a memo. “With support signals, the bond market could re-enter the medium bullish phase.”
China’s money market was under pressure earlier this year after PBOC allowed cash crunches to surge the highest short-term funding costs since June. The central bank also refrains from reducing interest rates or banking required reserve ratios from September.
Meanwhile, annual supply of China’s new government bonds has been set to increase to 11.86 trillion yuan this year after raising the general fiscal deficit target to around 4% of its highest level of GDP in over 30 years.
PBOC should be more comfortable with Ewan after the recent decline in depreciation pressures, and therefore there is less need to keep liquidity stronger,” said Becky Liu, head of China Macro Strategy at Standard Chartered Bank in Hong Kong.
– Support from Qizi Sun
(Update with more comments and details)
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