Low auc­tion yields ham­per PBoC’s in­fla­tion fight

The Pak Banker - - Company& -

BEI­JING: The low­est yields at Chi­nese auc­tions in more than three years are curb­ing de­mand for cen­tral bank bills, ham­per­ing ef­forts to drain cash from the fi­nan­cial sys­tem as in­fla­tion gath­ers pace.

The Peo­ple's Bank of China sold 1 bil­lion yuan ($150 mil­lion) of one-year bills to yield 2.34 per­cent on Nov. 30, 70 ba­sis points less than the rate on sim­i­lar-ma­tu­rity ex­ist­ing se­cu­ri­ties, ac­cord­ing to data com­piled by Bloomberg. The sale raised the least amount at a weekly auc­tion since Oc­to­ber 2007 and seven times the av­er­age yield spread for 2010. Con­sumer prices rose 4.4 per­cent in Oc­to­ber, the most in 25 months.

"The cen­tral bank is fac­ing greater pres­sure to soak up liq­uid­ity as the con­sen­sus is that Novem­ber's in­fla­tion rate was even higher than Oc­to­ber's," said Wang Mingfeng, a fixed­in­come an­a­lyst at Citic Se­cu­ri­ties Co., the nation's largest listed bro­ker­age. "Bill auc­tion rates may have to rise to re­flect gains in trad­ing as cur­rent lev­els are ir­ra­tionally low."

The Peo­ple's Bank of China raised len­ders' re­serve re­quire­ments twice last month and an­nounced in Oc­to­ber the first in­ter­est-rate in­crease since 2007, seek­ing to tame in­fla­tion as prospects for ap­pre­ci­a­tion of the yuan draw funds to the coun­try.

The cen­tral bank may step up debt sales to soak up in­flows, Ma Delun, a deputy gover­nor, said Nov. 29, three days af­ter the Fi­nance Min­istry failed to draw enough de­mand at a bill auc­tion for the first time since June.

The cen­tral bank has on av­er­age raised 33 bil­lion yuan at this year's weekly sales of one-year bills. Yes­ter­day's sale of 1 bil­lion yuan of three­month notes by the mon­e­tary author­ity was also the small­est since 2007 and com­pares with a 2010 av­er­age of 38 bil­lion yuan.

"The PBOC has been scal­ing back auc­tions but there's an over­sup­ply of these notes any­way be­cause of ex­pec­ta­tions for more in­ter­est-rate in­creases," said Jiang Mingbo, who helps man­age 25 bil­lion yuan at ICBC Credit Suisse As­set Man­age­ment Co. in Bei­jing. "The bill-rate gap with the sec­ondary mar­ket is also stop­ping buy­ing." Auc­tion rates for oneyear bills have climbed 25 ba­sis points, or 0.25 per­cent­age point, since the Peo­ple's Bank of China raised its bench­mark 12-month de­posit rate on Oct. 19 by a quar­ter of a per­cent­age point to 2.5 per­cent. -PB News

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