China's bill and bond yields mostly rose on Friday, with the curve flattening, as money flowed out of debt into the soaring stock market, pushing repo rates up sharply. The Shanghai Composite Index soared over 9 percent in response to a market support package announced by the government late on Thursday. In response, the weighted average seven-day repo rate climbed to 3.3663 percent by midday from 3.2227 percent on Thursday.
"There's a liquidity squeeze today because of a rapid diversion of funds into stocks, and since this week's large open market drains will offset money injected next week by the central bank's reserve ratio cut," said a trader at a securities company in Shanghai.
The indicative 90-day central bank bill yield rose to 3.4320 percent bid from 3.4011 percent, according to Reuters Reference Rates, its first rise in two weeks. Many traders think the stock market's rally is unlikely to continue for long, given slowing corporate profit growth. But if the government does succeed in putting a floor under stocks, that could permit a resumption of major initial public offers of equity in coming months, pressuring money market liquidity.