Chinese money rates and bond yields have significantly gone down on Monday after the People’s Bank of China made a surprise move by simultaneously cutting the official interest rates and reducing the required reserved ratios for some of the banks.
According to Reuters, the volume-weighted average yield for the benchmark seven-day repo rate stood at 2.73 percent in early trade, down 19 basis points from Fridays close.
The Bonds yields opened about five basis points lower but later picked up in the morning trade, traders revealed. By Monday, midday, the five-year government bond yield was down two basis points at 3.24 percent.
However, analysts were confident that the money market yields would remain small but expressed caution on longer-term rates, which have risen in the past year as worries over the rapidly increasing municipal debt issuance have blunted the impact of the central bank’s easing.
The benchmark loan prime rate fell 25 basis points to 4.8 percent.
A senior manager in a major Chinese-owned Bank in Shanghai stated that “ Money market sentiment is buoyant.” He added that the investors expect the rates to continue to fall in the weeks to come, this is thanks to the continuous official efforts to guide funding costs lower, but fixed incomes may have limited room to drop due to too much debt supply in 2015.
Shuang Ding, Chief China Economist at the Standard Chartered Bank in Hong Kong said, “ Last week we saw some up stick in the yields, as people had started to worry that the central bank was holding back from further easing.”
He added that they would expect the latest measures revealed will reassure investors. Nonetheless, the outlook for the bond yields also will depend on the supplying side. The main problem is that if the overall credit demand starts to pick up, then the borrowers are likely to start competing with local governments for financing.
Equities, however, saw fresh volatility with the benchmark Shanghai Composite index opening more than 2 percent higher, quickly sinking into red, and then crawling back to positive territory by mid-morning.
