China's cash bond yields retreated in August and were likely to remain resilient on some positive factors in future.
By last Friday, China's interbank 10-year fixed-rate T-bond yield, a bond market yield benchmark which runs inversely with their prices, fell 9.03 basis points (bp) from August 3. Analysts said that local cash bonds were first likely to benefit from the presently loose liquidity flows.
On August 25, China's central bank announced cuts of the benchmark 1-year term deposit rate and required reserve ratio (RRR) by 0.25 percent and 0.5 percent respectively, effective as of August 26 and September 6. Last week, the central bank also pumped 60 billion yuan liquidity into local financial system via its reverse repo sales on open market.
On August 26 and 28, the Chinese central bank conducted 140 billion yuan 6-day and 60 billion yuan 7-day short-term liquidity operations (SLO) to further grease the financial system. Besides, China's Ministry of Finance and central bank also invited biddings for 60 billion yuan 3-month Treasury cash deposits to increase financial market fluidity.
Under such circumstances, China's financial market liquidity flows were fairly likely to remain loose at least in near future. Regarding the future bond supply pressures, no excessive worries were necessary as local bond market players had far expected debut of the third batch of local government bonds to be issued to replace Chinese localities' existing debts.
Last week, China's Finance Minister - Lou Jiwei told media that the country arranged 3.2 trillion yuan quota for bonds to be floated for local governments' existing debt replacement, meaning that there would be the third batch after the previous two ones had been unveiled earlier this year.
What's more, demands for bonds by portfolio investors were likely to continue to stem bonds from deep recession, said market watchers. However, investors were not suggested to bet on big rally as currently, China's cash bond yields had stood at relatively low levels and some high frequency data hinted that the economy might be better than anticipated.
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