China's Bonds Gain on More Money Supply; Yuan Little Changed
2008-11-10 10:02:27.640 GMT

By Belinda Cao and Judy Chen
     Nov. 10 (Bloomberg) -- China's government bonds gained on
speculation that the central bank will ease monetary policy,
supporting demand for debt sold to fund a 4 trillion yuan ($586
billion) stimulus plan. The yuan was little changed.
     The People's Bank of China may increase money supply and
cut interest rates to bolster the economy, Governor Zhou
Xiaochuan said yesterday in Sao Paulo. The State Council
announced a spending plan yesterday and said ``moderately
loose'' monetary policy will be pursued. The central bank since
Oct. 27 reduced sales of three-month and one-year bills to every
other week, from once a week, leaving more cash in the economy.
     ``There is still strong demand for debt investment in the
market,'' said Xu Xiaoqing, a Beijing-based fixed-income analyst
at China International Capital Corp., the nation's first Sino-
foreign investment bank. ``More government bond supply will be
offset by the shrinking amount of central bank bills.''
     The yield on the 3.68 percent bond due September 2018 slid
6.5 basis points to 2.89 percent today, the lowest this year,
according to the China Interbank Bond Market. The price of the
security rose 0.57 per 100 yuan face amount to 106.73. A basis
point is 0.01 percentage point.
     A new, looser monetary policy suggests ``that money supply
will increase, liquidity will be ample, or interest rates on
bank loans will be lower,'' Zhou told reporters in Sao Paulo,
where he's attending a Bank for International Settlements
meeting.
     China's local-currency bonds advanced 2.7 percent last
month, the biggest increase since February 2002, according to a
debt index compiled by HSBC Holdings Plc. The People's Bank of
China reduced its benchmark lending rate in September for the
first time in six years and followed up with two more cuts to
both lending and deposit rates in October.

                      Yuan Little Changed

     The yuan was little changed against the dollar amid concern
the stimulus package will fail to avert a slump in growth as
global economies enter a recession.
     ``It's still a big question mark whether the stimulus plan
can effectively stop the slowdown,'' said Liu Dongliang, a
Shenzhen-based foreign-exchange analyst at China Merchants Bank
Co., the country's sixth-largest lender. ``The government is
determined to keep the yuan stable in this turmoil.''
     The yuan closed at 6.8266 a dollar in Shanghai, compared
with 6.8255 late last week, according to the China Foreign
Exchange Trade System. It's gained 0.1 percent in the past month
and 7 percent this year.
     China's exports climbed 18 percent in October, the slowest
monthly pace since March 2007, after gaining 22 percent in
September, according to the median estimate of 17 economists
surveyed by Bloomberg News. The data is due to be released this
week.

For Related News:
News on China's bonds: TNI CHINA BON BN<GO>
Top currency news: TOP FRX <GO>
News on China's currency: NSE YUAN IN HEADLINE <GO>
Stories on China economy: NSE CHINA ECONOMY IN WIRE: BN <GO>

--With reporting by Jiang Jianguo in Shanghai. Editors: Sandy
Hendry, James Regan

To contact the reporters on this story:
Judy Chen in Shanghai at +86-21-6104-7047 or
xchen45@bloomberg.net;
Belinda Cao in Beijing at +86-10-6535-2316 or
lcao4@bloomberg.net

To contact the editor responsible for this story:
Sandy Hendry at +852-2977-6608 or
shendry@bloomberg.net.

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