Yuan Forwards Set for Second Weekly Loss; Bonds Little Changed

By John Liu

April 17 (Bloomberg) -- Yuan forwards headed for a second weekly loss on speculation the central bank will keep the currency from rising to support exports after economic growth slumped to a nine-year low. Bonds were little changed.

Premier Wen Jiabao said on April 15 that his government has no room for “blind optimism” about the country’s economic situation, according to a statement on the Web site of the State Council yesterday. A report from China’s statistics bureau showed growth cooled to a 6.1 percent pace in the first quarter, while urban fixed-asset investment and industrial output rose.

“It’s too early to say the economy has turned around,” said Liu Xin, a Hong Kong-based currency analyst at Bank of Communications Ltd., China’s fifth-largest lender. “Yuan forwards will stay mostly rangebound, after a rally in March.”

Twelve-month non-deliverable forwards contracts dropped 0.22 percent this week to 6.7610 per dollar as of 11:37 a.m. Shanghai time, from 6.7460 on April 10, according to data compiled by Bloomberg. In the spot market, the currency traded at 6.8332, little changed from 6.8336 a week ago, according to the China Foreign Exchange Trade System.

The foundation for an economic recovery in China is not solid, Premier Wen said at a State Council meeting on April 15. The impact of the financial crisis on China is still deepening and the rebound in industrial production lacks momentum, he said.

Forwards are agreements in which assets are bought and sold at current prices for settlement at a later-specified time and date. Non-deliverable forwards are settled in dollars rather than the underlying asset.

Bonds Little Changed

China’s government bonds were little changed this week as concern record bank lending will fuel inflation kept gains in check.

“Bonds will remain little changed for some time,” said Pang Aihua, a fixed income analyst in Beijing at China Citic Bank Co., a unit of China’s biggest state investment company. “We don’t know when the economy will really rebound, and at the same time the tremendous liquidity adds to inflation risks.”

New lending by Chinese banks jumped more than sixfold last month from a year earlier to 1.89 trillion yuan ($277 billion), and M2, the broadest measure of money supply, grew 25.5 percent, the central bank said April 11.

The yield on the 1.77 percent treasury note due December 2013 was at 2.40 percent. The price of the security was 97.25 per 100 yuan face amount, according to the Interbank Bond Market. A basis point is 0.01 percentage point.

To contact the reporters on this story: John Liu in Shanghai at jliu42@bloomberg.net.