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Treasury notes gain in reaction to cuts in rates


The first batch of three-year treasury notes listed after Friday's interest rate cuts have risen 5.86 per cent on their debut, to 105.86 yuan (about HK$98.44).

Traders said the rise was expected because of the cut of 1.5 percentage points on average for deposits and 1.2 points for loans.

At 105.86 yuan, the notes carried a yield of 8.67 per cent - slightly higher than the interest of 8.28 per cent paid on three-year time deposits, but lower than the nominal yield of 10.96 per cent.

The 30 billion yuan of debt securities each have a face value of 100 yuan.

When trading opened yesterday morning, the notes shot up to 106.80 yuan, later reached a high of 107 yuan on a burst of buying pressure before profit-taking by underwriters pushed the price down by about one yuan to 105.86 yuan at the afternoon close.

Sellers mostly were brokerages in the 60-member underwriting syndicate.

Shanghai Finance Securities investment fund trader Xu Bing said: 'By selling about 106 yuan, the underwriters could make six yuan on each note without having to cough up any cash up front.' If they held on to the treasury notes, they would have to borrow from the treasury bond repurchase (repo) market to finance the purchase. The repo rates are higher than the yield of the notes.

Analysts said the notes had support above 105 yuan because banks were buying actively.

'Banks were buying at that level because the yields are higher than what they have to pay in interest on one-year and three-year deposits,' Mr Xu said.

Banks also were flush with deposits and were reluctant to lend aggressively because many state enterprises were unable to repay the interest, let alone the principal.

Analysts said notes were unlikely to rise in the next few weeks because investors were still more interested in the 10-year treasury notes listed last month.

Shenyin & Wanguo Securities bond trader Chen Yong said: 'The 10-year notes pay annual interest, which is highly attractive to investors.'