Chinese bond yields continued falling on Monday because of improving money market liquidity and expectations for lower August inflation, but traders said most interest rate swaps were likely to bottom soon. "Longer-term bond yields may fall about 10 basis points further in coming weeks because of easing inflation. Shorter-term yields, which are now below the one-year deposit rate, will fall less," said a trader at an Asian bank in Shanghai.
The market is expecting August inflation, to be announced on September 11, to come in below 6 percent against July's 6.3 percent. Such expectations are being supported by continued softness in food prices. The National Development and Reform Commission said on Monday that pork prices fell 0.28 percent in the week to August 22.
Shenyin & Wanguo Securities said in a research note on Monday that the central bank was not expected to raise bank reserve ratios in the rest of 2008, because it wanted commercial banks to expand lending and since the amount of central bank bills due to mature in coming months was not large. Some traders are even speculating about the possibility of a reserve ratio cut late this year.
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