China's money-market rate rose to a 19-month high as Bank of China Ltd started selling convertible bonds today, boosting demand for capital in the financial system.
The nation's third-largest lender by market value plans to raise 40 billion yuan ($5.9 billion) in the sale, according to a statement published May 30. China's finance ministry sold 28 billion yuan of three-year bonds today, drawing bids for 1.48 times the amount on offer, down from 1.61 times at the last auction on March 17, according to traders at Agricultural Bank of China and China Postal Savings Bank.
"The BOC's convertible debt sale, which is the largest ever, is draining capital from the market," said Chen Liang, a fixed-income analyst at Guohai Securities Co in Shenzhen. "The sale may lock up 600 to 700 billion yuan of capital."
The seven-day repurchase rate, which measures the cost of loans between banks, climbed eight basis points to 3.28 percent, the highest since October 2008, according to a daily fixing rate set by the National Interbank Funding Center.
The central bank yesterday sold one-year bills at a yield of 2.0096 percent, up from 1.9264 percent last week. That was the first time in more than four months that policy makers pushed the rate higher and reflects tighter liquidity in the financial system after commercial lenders were ordered to set aside more funds as reserves three times this year.
The yield on the 3.25 percent treasury note due May 2020 gained two basis points to 3.3 percent as of 12:13 p.m. in Shanghai, and the price of the security dropped 0.15 per 100 yuan face amount to 99.60, according to the Interbank Bond Market. A basis point is 0.01 percentage point.
Cautious sentiment
"The market has turned quite cautious after the central bank raised one-year bill yields," said Guohai's Chen. "The low demand at today's auction reflects the sentiment."
Consumer prices rose 2.8 percent from a year earlier in April, the biggest increase in 18 months, official figures show. Central bank adviser Li Daokui estimates inflation will reach 3.7 percent this year, the official People's Daily overseas edition reported today.
Yuan forwards weakened for a third day on speculation the central bank will prevent the currency from strengthening before the European debt crisis eases.
"The market is worried the central bank may delay any change in monetary policy because of the unstable global environment," said Liu Xin, an analyst at the Hong Kong branch of Bank of Communications Ltd., China's fifth-biggest lender. "Traders are sitting and waiting for any clear policy signal."
The Purchasing Managers' Index fell to 53.9 in May from 55.7 the previous month, the Federation of Logistics and Purchasing said yesterday, less than the median 54.5 estimate in a Bloomberg News survey of 18 economists.
Twelve-month non-deliverable forwards declined 0.1 percent to 6.7830 per dollar, reflecting bets the yuan will strengthen 0.7 percent from the spot rate of 6.8317. The contracts were projecting 3.2 percent appreciation over 12 months at the start of May.
