China's one week-long decline bond yields slowed on Monday after news of a serious drought in a key soy-growing region sparked inflation worries while bill yields rose after the stock regulator said it would review an application for a large IPO.
Traders said concerns mounted that low food prices may be unsustainable despite Agriculture Vice-Minister Niu Dun's comments on Monday that a serious drought in China's main soy-producing region would not result in crop failure if there were rainfall over the next month and frost were delayed. Supply-driven food price rises would fuel expectations of a faster rise in consumer price inflation next year, they said, limiting the scope for further drops in bond yields.
"Liquidity is very ample now but traders are cautious in bidding yields much lower," said a trader at a securities company in Shanghai. The indicative five-year government bond yield eased to 2.9691 percent bid on Monday from 2.9700 percent on Friday, according to Reuters Reference Rates. In the money market, traders set aside funds after announcements late last Friday of major new share offerings.
China's stock regulator said it would review on Wednesday an application by Metallurgical Corp of China for a Shanghai IPO aiming to raise 16.85 billion yuan ($2.5 billion), and approved a Shanghai IPO by train maker China CNR Corp to raise nearly $1 billion. That pushed up the weighted average seven-day repo rate to 1.2888 percent by midday from 1.2644 percent on Friday.
The repo had been dropping for a week as the central bank was seen to have finished guiding bill yields higher in its open market operations. The 90-day central bank bill yield edged up to 1.3200 percent bid from 1.3182 percent. "The repo is rising in anticipation of an IPO-related squeeze even though fine-tuning of monetary policy is taking a breather," said a trader at an Asian bank in Shanghai.
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