China's bond yields edged higher across the curve on Friday, buoyed by small-scale but urgent fund demand ahead of the New Year holiday, but shorter-term bill yields were mixed and money market rates largely unchanged. Dealers said trade was thin in the interbank market as the New Year's Day holiday starting on January 1 approached, with banks having finished preparations for major money needs.
"The bond yields rose today largely because most institutions have already stopped conducting major transactions," said money market analyst Duan Yunfei at China Merchants Bank in Shenzhen. "Both upside and downside will be limited until mid-January when China publishes December's economic data, with ample liquidity on the market helping offset multi-year low yields."
The indicative five-year government bond yield edged 0.10 basis points higher to 1.8080 percent bid on Friday, staging a weak technical rebound for the third straight day after hitting a slew of multi-year lows earlier this month. The 15-year yield added 0.50 bps to 3.3112 percent bid, while the 20-year yield rose one bp to 3.5489 percent bid, according to Reuters Reference Rates.
Traders said they expected a lull of official policy moves until mid-January due to the start of the New Year, but they saw two to four 0.27-bp interest rate cuts in banks' benchmark one-year lending and deposit rates in the first quarter as the government continues fighting a slowdown in the economy.
China's gross domestic product would grow by around 8 percent in 2009, maintaining the pace thought necessary to create enough new jobs, deputy central bank governor Yi Gang said on Friday. But annual GDP growth fell to 9 percent in the third quarter of this year from 11.9 percent in 2007, and many economists expect growth next year to fall well below 8 percent. Some have forecast growth as low as 5 percent next year.
"Investment value in the medium- and long-term bonds still exists," Bank of China said in a research note on Friday. "We propose investors to eye five- to 10-year bonds in particular."
China's benchmark money market rate, the weighted average seven-day repo rate, was almost unchanged at 1.2200 percent at midday on Friday from Thursday's close of 1.2214 percent, due mainly to slow trade. But traders said a flood of liquidity on the market, propelled by the central bank's easy money policy, could easily push the key repo rate below 1.0 percent early next year or slightly later.