(H1) Recovering From the Lows


New Cycle Lows


Directional Triggers Defined


Recovers Well Off Wednesday Low


Pulling Away From The Channel Top


Trades Through Key Support

     TOP NEWS: The impact of the People's Bank of China's rate hikes on Thursday
will be limited and the move reflected supply and demand in the market in a bid
to guide expectations, the Financial News, a journal run by the PBOC reported
Friday, citing analysts. The interest rate spread between China and the U.S has
expanded to about 160 bps, which means the Federal Reserve rate hike will not
pressure the yuan exchange rate, the report argued. The slight PBOC rate hike
delivered a signal that deleveraging and risk prevention will continue,
indicating the PBOC will raise the rates on its liquidity instruments even when
it is not the proper time to adjust its benchmark interest rates, the report
said. The rate move is also intended to balance economic growth, the curbing of
asset bubbles and risk prevention, the report said. (Financial News)
     POLICY: The People's Bank of China issued a document Friday enabling
depository financial institutions, mainly banks, to use local government bonds
as collateral when their clearing account is short of money. When banks do not
have enough funding in their clearing account, they can automatically use
eligible bonds, including China government nd policy bank bonds as collateral to
borrow money from the PBOC to smooth clearing transactions. Now, local
government bonds and other bonds that the PBOC deems eligible can also be used
as a collateral for these transactions.
     RATES: The Ministry of Finance reopened and sold CNY28 billion in 30-year
government bonds at a yield of 4.3555% in an auction on Friday. The yield was
lower than the rate of 4.3664% that bonds with the same maturity fetched in the
secondary market on Thursday. The bonds were first auctioned on Oct. 23 with a
coupon of 4.28%.
     RATES: The Ministry of Finance sold CNY15 billion in 91-day treasury bills
at a yield of 3.9275% in an auction on Friday. The yield was lower than the
4.0210% that bonds with the same maturity fetched in the secondary market on
     RATES: Money market rates were mixed as medium and long-term capital demand
is increasing due to the expected cross-year tightness. The seven-day repo
average was last at 2.9132%, up from Thursday's average of 2.8998%. The
overnight repo average was at 2.6981%, much lower than Thursday's 2.8114%.
     LIQUIDITY: The People's Bank of China injected CNY80 billion in seven-day
reverse repos and CNY70 billion in 28-day reverse repos via open-market
operations. This resulted in a net injection of CNY150 billion for the day, as
no reverse repos mature on Friday. The PBOC has injected a net of CNY80 billion
via its reverse repos this week. The PBOC injected CNY288 billion into the
banking system via its Medium-term Lending Facilities (MLF) on Thursday, and a
total of CNY187 billion in MLF loans will mature on Saturday. As a result, the
PBOC will have injected a net of CNY101 billion into the banking system via its
MLF this week.
     YUAN: The yuan was stronger against the U.S. dollar on Friday despite the
People's Bank of China setting a weaker fixing rate for the day. The yuan was
last at 6.6080 against the U.S. unit after opening at 6.6084, compared with the
official closing price of 6.6088 on Thursday. The PBOC set the yuan central
parity rate at 6.6113, weaker than Thursday's 6.6033. The PBOC has set the
fixing weaker for three trading days out of five this week.
     BONDS: The yield on benchmark 10-year China government bonds was last at
3.8900%, down from the previous close of 3.9100%.
     STOCKS: Stocks were down, led lower by steel sector. The benchmark Shanghai
Composite Index closed down 0.80% at 3,266.14. Hong Kong's Hang Seng Index was
1.19% lower at 28,820.67.
     China needs to pay close attention to the accelerating withdrawal of global
monetary policy easing and react as needed in a timely and proper manner, the
Economic Information Daily said in the front page commentary on Friday. China
should be fully prepared for the spillover effects of monetary policy in
developed countries, the commentary warned. Some emerging countries have made
moves to offset the impact by cutting interest rates, which indicates economic
growth drivers in those countries are fading. But it is hard to reverse the
impact of the world-wide monetary policy tightening trend, which could increase
the risk of capital outflows from emerging markets, the commentary noted.
(Economic Information Daily)
     The Chinese bond market is expected to see a short-term recovery after the
People's Bank of China's interest rate hike Thursday and given the stable
performance of economy, but institutions are still worried about rising pressure
on bond yields later next year, the China Securities Journal reported Friday.
The slight 5 bps rate hike was much smaller than market expectations, so the
PBOC will have to adjust its policy rates more frequently as the Federal Reserve
continues to hike its rates, the report said. The official launch of the new
regulation to control asset management products will worsen the bond market
situation. The yield on government bonds will fall in the first quarter of next
year, but there will not be a downward trend, with upward pressure later on, the
report predicted. (China Securities Journal)
     The issuance of two-year government bonds should be increased as this is a
key medium-term tenure on the government bond yield curve, the People's Daily
reported Friday, citing Zhang Jiqiang, the managing director of fixed-asset
department of China International Capital Corporation. Important price about the
government bond yield curve will be generated via an increase in the size and
frequency of two-year government bond issues, and so improve the efficiency of
compiling the yield curve, Zhang said. In addition, more two-year issues would
inject needed liquidity with that duration, Zhang said. (People's Daily)
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[TOPICS: M$A$$$,M$Q$$$,MBQ$$$]