Chinese bill and bond yields mostly rose on Monday with the approach of Wednesday's 20-year bond sale by the finance ministry and a slew of key March and first quarter economic data which is expected to be strong. Traders believe longer-term yields, which had declined to eight-month lows at the end of March, may gradually rebound to eight-month highs seen in November over the next quarter or so.
The timing of monetary policy tightening is seen drawing closer - traders had earlier this year been expecting the People's Bank of China (PBOC) to wait until seeing the first quarter and March economic data before deciding whether to raise interest rates. A Reuters poll of economists on Friday forecast a rise in first quarter gross domestic product growth, due on Thursday, of 11.5 percent from 10.7 percent in the fourth quarter.
They predicted March consumer price inflation would fall to 2.6 percent, from February's 2.7 percent although traders believe upside risks still persisted in the coming months.
"Buying is still very conservative even though banks have to meet allocation requirements," said a trader at an Asian Bank in Shanghai, adding though that she expected an interest rate hike at the end of the second quarter. The indicative five-year government bond yield in the secondary market rose to a one-month high of 2.7900 percent bid on Monday from 2.7727 percent on Friday, according to Reuters Reference Rates.
In a research note on Monday, ING Bank forecast the 5-year government bond yield to be at 3.40 percent by the end of this year from current levels of 2.75 percent. In the money market, the weighted average seven-day repo rate fell to 1.6435 percent by midday from 1.6929 percent on Friday, not far above the 1.50-1.62 range that confined it in the latter half of last month.
Traders believe the PBOC is unwilling to see its weekly net drains in open market operations drop sharply further if the yields at its bill auctions are viewed by investors as too low and result in unattractive returns after the resumption of three-year bill sales following a two-year suspension.
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