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
ADVERTISEMENT
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 ...
Ping!
Are you still doing addmoney pings? (To rabscuttle385)
RE : investors will have to go back into long-term debt.
That seems incredibly risky, doesnt it?
You want yield? Can we interest you in about a trillion sub prime loans?
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.