Money

China's 9-month bills draw more bank bids

(Agencies)
Updated: 2010-08-06 16:01

China's auction of nine-month treasury bills today had the highest bid-to-cover ratio of the year, reflecting strong demand from banks seeking returns after the government restricted lending to help contain inflation.

The 10 billion yuan ($1.5 billion) issue attracted orders for 2.33 times the amount on offer, while the last sale of similar-maturity notes on June 11 failed to meet a 20 billion yuan target. The average yield was 1.8843 percent, down from 2.0511 percent last time. The seven-day repurchase rate, which reflects interbank funding availability, slid 1.03 percentage points between the two auction dates to 1.7 percent.

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"Banks had more cash for purchasing bonds as the annual target of new loans set by the regulator is still effective, limiting their lending," said Chen Jianheng, a bond analyst at China International Capital Corp, the nation's first Sino-foreign investment bank in Beijing. "The central bank also moderated their sterilization in open-market operations, helping leave more funds in the money market."

The government aims to limit new loans to 7.5 trillion yuan this year after banks in 2009 made a record 9.59 trillion yuan available to borrowers. New loans amounted to 4.62 trillion yuan in the first half and the Shanghai Securities News reported this week that July's total was about 700 billion yuan.

The People's Bank of China said yesterday inflation risks persist, though these are limited by slowing credit growth, stabilizing commodity prices and "abundant" domestic manufacturing capacity. A government report next week is expected to show consumer prices rose 3.3 percent from a year earlier in July, the most since October 2008, according to the median estimate of economists surveyed by Bloomberg.

The central bank took out a net 2 billion yuan from the money market in open-market operations this week, compared with net withdrawals of 84 billion yuan last week and 81 billion yuan in the period ended July 23.