SHANGHAI: China’s yuan held steady on Friday against the US dollar as yields for Chinese government bonds rose across the curve amid hints from the central bank that it could embark on large-scale bond sales.
The People’s Bank of China (PBOC) has hundreds of billions of yuan worth of medium- and long-term bonds at its disposal to borrow and sell, it said on Friday – part of plan markets see as an effort to cool a powerful bond rally.
Higher China government bond yields and a narrower spread against US treasury counterparts could help alleviate pressure on the yuan, said Samuel Tse, economist at DBS.
Not everyone was convinced, however, that the PBOC could have a lasting impact.
The “forces pushing down yields seem unlikely to reverse anytime soon,” Julian Evans-Pritchard, head of China Economics at Capital Economics, wrote in a note to clients.
“Without wider monetary tightening, which doesn’t appear to be on the cards, the best the PBOC can probably hope to achieve is to engineer a short-term pause to the bond rally,” he added.
Spot yuan opened at 7.2630 per dollar and was trading at 7.2694 as of 0254 GMT, 4 pips firmer than the previous late session close and 1.97% weaker than the midpoint.
Prior to the market opening, the PBOC set the midpoint rate , around which the yuan is allowed to trade in a 2% band, at 7.1289 per dollar, 1,415 pips firmer than a Reuters estimate.
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Also supporting the yuan was a weaker dollar.
The dollar index dropped to 105.02 on Friday, near a 3-week low.
Among Chinese government bonds, the 10-year tenor was up over 1 basis point after touching a 22-year low earlier this week.
American Dollar Exchange Rate