Bloomberg
Yuan Forwards Fall as Greek Crisis May Delay Shift; Bonds Drop
April 28, 2010, 5:49 AM EDT
By Patricia Lui
April 28 (Bloomberg) -- Yuan forwards fell by the most in more than a month on concern the deepening debt crisis in Europe will derail a global economic recovery and prompt China to delay appreciation of its currency.
The contracts, which bet on the future value of the yuan, dropped to the lowest level in two weeks after Standard & Poor’s cut Greece’s credit rating by three notches to junk, the first time a euro member has lost its investment grade since the currency’s debut. Stock markets slumped, and the Chicago Board Options Exchange Volatility Index, popularly known as the fear gauge, jumped the most since October 2008. China’s government debt declined after a bond auction failed to draw enough bids.
“The magnitude of declines in U.S. and European stocks has substantially reduced investors’ appetite for risk,” said Dariusz Kowalczyk, chief investment strategist for SJS Markets Ltd. in Hong Kong. “Any emerging-market asset will fall under the current circumstances, and this specially applies to Chinese forwards as the likelihood of a yuan appreciation declines.”
Twelve-month non-deliverable forwards fell 0.3 percent to 6.6333 per dollar as of 5:42 p.m. in Beijing, reflecting bets the currency will strengthen 2.9 percent from the spot rate of 6.8253, according to data compiled by Bloomberg. The contracts earlier dropped to 6.6349, the lowest level since April 14.
China’s policy makers have indicated they are waiting for clearer signs of a sustained global rebound before deciding to allow gains in the yuan, which has been pegged at about 6.83 per dollar since July 2008. Evidence of a “very certain” recovery is needed before China can roll back stimulus measures adopted during the crisis, central bank Governor Zhou Xiaochuan said last month.
Euro Slumps
Asian currencies rose against the single European currency today, after S&P also slashed Portugal’s credit ratings by two steps to A-. The yuan climbed 1.2 percent to a one-year high of 8.9734 per euro, Bloomberg data show.
The yuan’s advance will erode China’s competitiveness in its largest export market and delay an end to the dollar peg, said UniCredit SpA and Societe Generale SA. The European turmoil also may buttress Premier Wen Jiabao’s reticence to shift currency policy to shield exporters from the world recession.
“Chinese authorities have said all along that they are concerned about the stability of the global recovery,” said Joe Craven, Asia-Pacific head of currencies and fixed income at UniCredit in Hong Kong. “Given what’s happening presently in Europe, the likelihood of them doing anything in the short term is smaller.”
Bond Auction
China’s 10-year government bonds fell after the finance ministry failed to draw enough bids in its planned 28 billion yuan ($4.1 billion) one-year bond auction as Chinese banks, faced with lending curbs, favored higher returns offered from longer-dated debt.
The ministry sold 26.67 billion yuan of bonds at an average yield of 1.49 percent, compared with 1.44 percent at the previous sale on March 3, according to a statement on the Web site of Chinabond, the nation’s largest debt clearing house. The sale drew bids for 1.22 times the amount on offer, down from 2.12 times last month.
The yield on the 1.44 percent note due in November 2010 rose two basis points to 1.53 percent, and the price of the security declined 0.01 per 100 yuan face amount to 99.95, according to the National Interbank Funding Center. A basis point is 0.01 percentage point.
“The major reason for the unsuccessful issue of the debt is that major investors expect some increase in interest rates so they aren’t willing to accept even lower rates,” said Danny Chen, director of corporates at Fitch Ratings in Beijing. “They prefer to wait and see.”
China’s central bank will raise its benchmark interest rates this quarter, according to median estimates in Bloomberg surveys of analysts. The one-year lending and deposit rates are 5.31 percent and 2.25 percent, respectively, with the last increase in December 2007.
Yuan Forwards Fall as Greek Crisis May Delay Shift; Bonds Drop
April 28, 2010, 5:49 AM EDT
By Patricia Lui
April 28 (Bloomberg) -- Yuan forwards fell by the most in more than a month on concern the deepening debt crisis in Europe will derail a global economic recovery and prompt China to delay appreciation of its currency.
The contracts, which bet on the future value of the yuan, dropped to the lowest level in two weeks after Standard & Poor’s cut Greece’s credit rating by three notches to junk, the first time a euro member has lost its investment grade since the currency’s debut. Stock markets slumped, and the Chicago Board Options Exchange Volatility Index, popularly known as the fear gauge, jumped the most since October 2008. China’s government debt declined after a bond auction failed to draw enough bids.
“The magnitude of declines in U.S. and European stocks has substantially reduced investors’ appetite for risk,” said Dariusz Kowalczyk, chief investment strategist for SJS Markets Ltd. in Hong Kong. “Any emerging-market asset will fall under the current circumstances, and this specially applies to Chinese forwards as the likelihood of a yuan appreciation declines.”
Twelve-month non-deliverable forwards fell 0.3 percent to 6.6333 per dollar as of 5:42 p.m. in Beijing, reflecting bets the currency will strengthen 2.9 percent from the spot rate of 6.8253, according to data compiled by Bloomberg. The contracts earlier dropped to 6.6349, the lowest level since April 14.
China’s policy makers have indicated they are waiting for clearer signs of a sustained global rebound before deciding to allow gains in the yuan, which has been pegged at about 6.83 per dollar since July 2008. Evidence of a “very certain” recovery is needed before China can roll back stimulus measures adopted during the crisis, central bank Governor Zhou Xiaochuan said last month.
Euro Slumps
Asian currencies rose against the single European currency today, after S&P also slashed Portugal’s credit ratings by two steps to A-. The yuan climbed 1.2 percent to a one-year high of 8.9734 per euro, Bloomberg data show.
The yuan’s advance will erode China’s competitiveness in its largest export market and delay an end to the dollar peg, said UniCredit SpA and Societe Generale SA. The European turmoil also may buttress Premier Wen Jiabao’s reticence to shift currency policy to shield exporters from the world recession.
“Chinese authorities have said all along that they are concerned about the stability of the global recovery,” said Joe Craven, Asia-Pacific head of currencies and fixed income at UniCredit in Hong Kong. “Given what’s happening presently in Europe, the likelihood of them doing anything in the short term is smaller.”
Bond Auction
China’s 10-year government bonds fell after the finance ministry failed to draw enough bids in its planned 28 billion yuan ($4.1 billion) one-year bond auction as Chinese banks, faced with lending curbs, favored higher returns offered from longer-dated debt.
The ministry sold 26.67 billion yuan of bonds at an average yield of 1.49 percent, compared with 1.44 percent at the previous sale on March 3, according to a statement on the Web site of Chinabond, the nation’s largest debt clearing house. The sale drew bids for 1.22 times the amount on offer, down from 2.12 times last month.
The yield on the 1.44 percent note due in November 2010 rose two basis points to 1.53 percent, and the price of the security declined 0.01 per 100 yuan face amount to 99.95, according to the National Interbank Funding Center. A basis point is 0.01 percentage point.
“The major reason for the unsuccessful issue of the debt is that major investors expect some increase in interest rates so they aren’t willing to accept even lower rates,” said Danny Chen, director of corporates at Fitch Ratings in Beijing. “They prefer to wait and see.”
China’s central bank will raise its benchmark interest rates this quarter, according to median estimates in Bloomberg surveys of analysts. The one-year lending and deposit rates are 5.31 percent and 2.25 percent, respectively, with the last increase in December 2007.