Low auction yields hamper PBoC’s inflation fight
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