SHANGHAI, Aug 12 (Reuters) - Chinese onshore bond markets sold off on Wednesday following a two-day yuan depreciation which left China’s currency down more than 3 percent since Monday.
Yields on Chinese treasuries and corporate debt of different tenors and ratings are mostly up 5 to 10 basis points since Monday, as traders priced in a less attractive spread in dollar terms against off-shore foreign currency assets.
The yield on the benchmark five-year treasury was up 9 basis points since Monday’s close, to 3.26 percent. Five-year AA rated corporate debt was likewise up nine basis points to 5.63 percent.
The five-year sovereign credit default swap was up 0.73 percent on Wednesday to 102.45, its highest level since January.
Despite the action in the bond markets, money markets were broadly calm, in contrast to earlier in the year when a rapidly appreciating trade-weighted yuan was blamed for tighter conditions in the money market. [ID:nL4N0W81FB}
“The devaluation cannot cause capital flows in such a short time, but it will influence the money supplied to some extent, of course,” said a trader at a Chinese bank in Shanghai.
“After the depreciation of the yuan, major banks are more cautious. Maybe they will reserve some money and hold on to see how the market reacts. So I believe there is still adequate money in the market but less liquidity,” the trader said.
The volume-weighted average of the benchmark seven-day repurchase agreement rate was up 3 basis points from Monday’s close to 2.44 percent by late Wednesday afternoon.
Money rates below 3 percent are generally considered accommodative by traders.
Money market rates, which spiked upwards in the initial stages of the equity sell-off in mid June, have since fallen back below 3 percent as the central bank injected liquidity.
After halting open market operations for several weeks in the late spring, the People’s Bank of China has now injected a net 124 billion yuan ($19.27 billion) into money markets in 2015 as of last Thursday.
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>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>> ($1 = 6.4345 Chinese yuan) (Reporting by Nathaniel Taplin and the Shanghai Newsroom; Editing by Muralikumar Anantharaman)