BEIJING, Nov. 5, 2009 (Xinhua News Agency) -- With bonds fluctuating in a narrow-range amid China's fluid liquidity, the underlying worries of inflation could prove a decisive factor in future yield movements, said analysts.
A Wednesday yield resurgence for secondary one-year central bank bills returned to the previous 1.87 to 1.88 percent indicated how the strong fears of inflation fueled market yields, despite the central bank, the People's Bank of China's (OOTC:BACHY) (PBoC), holding its benchmark coupon rate equal to Tuesday's.
Though backed by the market's present cash flow surplus, the prevalently lesser-than-expected concerns of inflation over the future 12 months could sustain local bonds from volatile fluctuations, according to market watchers.
It was fairly possible that merely limited up and downs would befall local bonds in the near term, noted experts.
Meanwhile, the present mid-term bond yields, which were basically in line with levels preceding China cutting interest rates five times last year, depicted a fairly confined space for future bond yield hikes, even if the PBoC raises interest rates, said analysts.
But currently, trading opportunities may prove scarce as the inflation management target highlighted by the government weighed upon investors' minds.
It is likely that after the November Consumer Price Index (CPI) goes positive as expected, China's economic growth,authority's judgment on economic situation as well as the monetary policy changes, would emerge again as factors dominating bonds.
Besides, an approaching yield rebound for the one-year central bank bills, in two or three weeks likely, might lift primary market offering yields, predicted analysts, given an inverted yield of one-year central bank bills.
They noted that consecutive rises in the yield in the near future are unlikely while balancing the current economic fundamentals, policies, and market sentiment.
Publicized data shows that the PBoC sold 22 billion yuan one-year bills at a 1.7605 percent rate for the tenth time on Tuesday while the secondary market's yield has topped 1.88 percent since late October.
