Yuan Forwards Rise on Currency Stress-Test Report; Bonds Surge
By Bloomberg News
Feb. 26 (Bloomberg) -- Yuan forwards strengthened the most in two weeks after a local newspaper reported that the government is assessing the likely impact of currency gains, fueling speculation appreciation will be allowed to resume.
China is carrying out stress tests on labor-intensive industries to gauge the effect a stronger yuan would have on earnings, the 21st Century Business Herald reported today, citing unidentified officials. The financial newspaper is based in Guangzhou City, a hub of China’s private manufacturers. The yuan’s value has been kept at about 6.83 per dollar since July 2008, following a 21 percent advance over three years, as policy makers intervened to help exporters weather a global recession.
The authorities “have been thinking about yuan appreciation for a long time, probably since the end of last year,” said Stephen Green, head of China research at Standard Chartered Bank Plc in Shanghai. “It will be a very quiet resumption of gradual appreciation against the dollar. They will do it in their own time.”
Twelve-month non-deliverable forwards rose 0.1 percent to 6.6585 per dollar as of 6 p.m. in Hong Kong, the biggest gain since Feb. 11, according to data compiled by Bloomberg. The contracts indicate bets the yuan will rise 2.5 percent from the spot rate of 6.8260. The currency may appreciate as soon as the second quarter and end 2010 with a 2 percent gain, Standard Chartered’s Green said.
Yuan forwards underestimate the pace of gains in China’s currency, which may strengthen as much as 7 percent in 18 months, according to Wells Fargo & Co.
Political Voices
The central bank may allow the yuan to resume appreciation around the middle of the year and will then seek an annual 6 percent to 8 percent advance against the dollar, Nick Bennenbroek, head of currency strategy at Wells Fargo in New York, wrote in a research note yesterday. Companies should buy the non-deliverable forward to hedge against strengthening in the currency, he recommended.
U.S. Senator Charles Schumer and 14 colleagues said yesterday Chinese exporters should be hit with stiffer U.S. tariffs to compensate for the unfair advantage they get from an undervalued yuan.
Maintaining a stable exchange rate is an economic priority, Yao Jian, spokesman for China’s Ministry of Commerce, said at a briefing yesterday. Any adjustments to the current policy will be a “gradual process,” Zhao Qizheng, spokesman for the China People’s Political Consultative Conference, said Feb. 24.
The central bank buys dollars to keep the yuan from strengthening, purchases that helped drive China’s foreign- exchange reserves 23 percent higher to a record $2.4 trillion last year. Japan’s reserves are the second largest in the world at $1 trillion.
Bonds Surge
Government bonds surged after the finance ministry auctioned 30-year bonds at a lower yield than analysts forecast.
The ministry sold 24 billion yuan ($3.5 billion) of the securities at an average yield of 4.08 percent, two basis points, or 0.02 percentage point, lower than the 4.1 percent median estimate in a Bloomberg News survey of 15 finance companies. The sale drew bids for 2.12 times the amount of debt offered, according to a statement posted on Chinabond, which is run by the nation’s largest debt-clearing house.
“The auction result was better than our forecast, even though we were already optimistic,” said Chen Jianheng, a bond analyst at China International Capital Corp., the nation’s first Sino-foreign investment bank in Beijing. “The bid-to-cover ratio, which was much higher than the normal 1.5 to 1.6 times for government debt sales, showed demand for debt investments is very strong.”
Strong Demand
The yield on the 2.9 percent bond due in December 2014 slid nine basis points to 2.85 percent, and the price of the security jumped 0.4 per 100 yuan face amount to 100.21, according to the Interbank Funding Center. Chen predicted bond yields will keep sliding through March.
The seven-day repurchase rate, which reflects the cost of borrowing money in the interbank market, dropped two basis points to 1.67 percent, according to a daily fixing rate published by the funding center.
“Debt demand from cash-rich financial institutions was unleashed as people don’t expect the central bank to announce further tightening measures in the near future after two reserve-ratio hikes,” Chen said.
The People’s Bank of China on Feb. 12 ordered lenders to set aside more deposits as reserves for the second time in a month to help contain inflation. The change took effect yesterday.
By Bloomberg News
Feb. 26 (Bloomberg) -- Yuan forwards strengthened the most in two weeks after a local newspaper reported that the government is assessing the likely impact of currency gains, fueling speculation appreciation will be allowed to resume.
China is carrying out stress tests on labor-intensive industries to gauge the effect a stronger yuan would have on earnings, the 21st Century Business Herald reported today, citing unidentified officials. The financial newspaper is based in Guangzhou City, a hub of China’s private manufacturers. The yuan’s value has been kept at about 6.83 per dollar since July 2008, following a 21 percent advance over three years, as policy makers intervened to help exporters weather a global recession.
The authorities “have been thinking about yuan appreciation for a long time, probably since the end of last year,” said Stephen Green, head of China research at Standard Chartered Bank Plc in Shanghai. “It will be a very quiet resumption of gradual appreciation against the dollar. They will do it in their own time.”
Twelve-month non-deliverable forwards rose 0.1 percent to 6.6585 per dollar as of 6 p.m. in Hong Kong, the biggest gain since Feb. 11, according to data compiled by Bloomberg. The contracts indicate bets the yuan will rise 2.5 percent from the spot rate of 6.8260. The currency may appreciate as soon as the second quarter and end 2010 with a 2 percent gain, Standard Chartered’s Green said.
Yuan forwards underestimate the pace of gains in China’s currency, which may strengthen as much as 7 percent in 18 months, according to Wells Fargo & Co.
Political Voices
The central bank may allow the yuan to resume appreciation around the middle of the year and will then seek an annual 6 percent to 8 percent advance against the dollar, Nick Bennenbroek, head of currency strategy at Wells Fargo in New York, wrote in a research note yesterday. Companies should buy the non-deliverable forward to hedge against strengthening in the currency, he recommended.
U.S. Senator Charles Schumer and 14 colleagues said yesterday Chinese exporters should be hit with stiffer U.S. tariffs to compensate for the unfair advantage they get from an undervalued yuan.
Maintaining a stable exchange rate is an economic priority, Yao Jian, spokesman for China’s Ministry of Commerce, said at a briefing yesterday. Any adjustments to the current policy will be a “gradual process,” Zhao Qizheng, spokesman for the China People’s Political Consultative Conference, said Feb. 24.
The central bank buys dollars to keep the yuan from strengthening, purchases that helped drive China’s foreign- exchange reserves 23 percent higher to a record $2.4 trillion last year. Japan’s reserves are the second largest in the world at $1 trillion.
Bonds Surge
Government bonds surged after the finance ministry auctioned 30-year bonds at a lower yield than analysts forecast.
The ministry sold 24 billion yuan ($3.5 billion) of the securities at an average yield of 4.08 percent, two basis points, or 0.02 percentage point, lower than the 4.1 percent median estimate in a Bloomberg News survey of 15 finance companies. The sale drew bids for 2.12 times the amount of debt offered, according to a statement posted on Chinabond, which is run by the nation’s largest debt-clearing house.
“The auction result was better than our forecast, even though we were already optimistic,” said Chen Jianheng, a bond analyst at China International Capital Corp., the nation’s first Sino-foreign investment bank in Beijing. “The bid-to-cover ratio, which was much higher than the normal 1.5 to 1.6 times for government debt sales, showed demand for debt investments is very strong.”
Strong Demand
The yield on the 2.9 percent bond due in December 2014 slid nine basis points to 2.85 percent, and the price of the security jumped 0.4 per 100 yuan face amount to 100.21, according to the Interbank Funding Center. Chen predicted bond yields will keep sliding through March.
The seven-day repurchase rate, which reflects the cost of borrowing money in the interbank market, dropped two basis points to 1.67 percent, according to a daily fixing rate published by the funding center.
“Debt demand from cash-rich financial institutions was unleashed as people don’t expect the central bank to announce further tightening measures in the near future after two reserve-ratio hikes,” Chen said.
The People’s Bank of China on Feb. 12 ordered lenders to set aside more deposits as reserves for the second time in a month to help contain inflation. The change took effect yesterday.