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China Money: Bond curve may have steepened enough
Reuters ^ | 12/08/08 | Alex Wang

Posted on 12/09/2008 9:16:33 AM PST by TigerLikesRooster

China Money: Bond curve may have steepened enough

Reuters - Monday, December 8

By Alex Wang

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SHANGHAI, Dec 8 - China's bond yield curve has steepened spectacularly in the last few months as the central bank has flooded the money market with funds. But short-term yields are now so low that the curve may flatten back moderately.

The spread between the indicative one-year government bond yield and the 20-year yield ballooned to a multi-year high of 218 basis points on Monday from just 67 bps two months ago, Reuters Reference Rates show.

There were good reasons for the steepening. On Friday, a big cut in commercial banks' reserve ratios took effect as the central bank eased quantitative policy, seeking to stimulate corporate lending by pushing down banks' cost of funding.

And in order to inject even more money into the market, the central bank has suspended new issues of one-year bills and sharply cut back sales of three-month bills, leaving the market starved of high-grade, short-term debt.

Meanwhile, a big fiscal stimulus package announced in November is expected to be financed partly by an increase in government bond issues, focused in the long end of the curve.

UBS estimates issuance of government bonds with tenors of 10 years and above could reach 490 billion yuan in 2009, against 207 billion yuan in the first 11 months of 2008.

DESPERATION FOR YIELD

But some traders and analysts are starting to think the market has fully digested these factors, and that in their desperation for yield as the economy slumps, investors will have to go back into long-term debt.

(Excerpt) Read more at ph.news.yahoo.com ...


TOPICS: Business/Economy; News/Current Events
KEYWORDS: bond; china; spread; yield

1 posted on 12/09/2008 9:16:33 AM PST by TigerLikesRooster
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To: TigerLikesRooster; PAR35; bamahead; AndyJackson; Thane_Banquo; nicksaunt; MadLibDisease; ...

Ping!


2 posted on 12/09/2008 9:17:11 AM PST by TigerLikesRooster (kim jong-il, chia head, ppogri, In Grim Reaper we trust)
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To: TigerLikesRooster; rabscuttle385

Are you still doing addmoney pings? (To rabscuttle385)


3 posted on 12/09/2008 9:24:43 AM PST by sickoflibs (Obama says: "I only need to buy 40% of voters with handouts and trick another 11%")
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To: TigerLikesRooster

RE : investors will have to go back into long-term debt.

That seems incredibly risky, doesnt it?


4 posted on 12/09/2008 9:26:42 AM PST by sickoflibs (Obama says: "I only need to buy 40% of voters with handouts and trick another 11%")
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To: TigerLikesRooster
that in their desperation for yield as the economy slumps, investors will have to go back into long-term debt.

You want yield? Can we interest you in about a trillion sub prime loans?

5 posted on 12/09/2008 3:37:45 PM PST by groanup
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