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imageSHANGHAI: China's primary money rates fell this week, but Treasury yields rose from seven-year lows as investors took profits from bonds' recent rally.

The volume-weighted average rate of the benchmark seven-day repo traded in the interbank market, considered the best indicator of general liquidity in China, was 2.2555 percent, down seven basis points (bps) on the week.

The central bank kept short rates steady this week with its second consecutive net fund injection through open markets.

After touching a new seven-year low on Monday, Chinese Treasuries sold off for the remainder of the week as investors took profits following the record run and as equities touched seven-month highs.

Ten-year Chinese Treasury yields were trading at 2.73 percent on Friday morning, after falling to as low as 2.64 percent on Monday.

Still, analysts were broadly constructive on the outlook for Chinese government debt, given concerns about the health of the corporate sector and low interest rates globally.

"Domestically, a soft growth outlook and concerns on credit bonds are encouraging asset allocation into safer assets including sovereign bonds and policy financial bonds," wrote Frances Cheung, Head of Rates Strategy Asia Ex-Japan in a note.

"Externally, there has been an increased interest among foreign investors in investing in onshore yuan bonds, upon the earlier relaxation of access to the interbank bond market, although according to Chinabond data inflows stopped in July following four months of consecutive inflows."

In the municipal bond market, data on Wednesday showed July municipal bond issuance slowed from June, while the Shanghai government announced it would issue up to five billion yuan of municipal debt in its free trade zone.

The one-day or overnight repo rate stood at 1.9807 percent, down two bps on the week and the 14-day repo stood at 2.6000 percent.

The spread of the five-year credit default swap rate on Chinese sovereign debt fell 1.89 percent at 102.44.

Copyright Reuters, 2016

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