The Chinese central bank pushed up its one-year bill yield faster than expected today to 1.93%, in a bid to get ahead of inflation expectations and tame bubble fears.
China has indeed begun tightening, but so far it's as if they're bailing water out with a spoon. 2009 was a record year for new loan growth after all:
Alibaba News: The People's Bank of China (PBOC) guided its one-year bill yield up for a second week in a row to 1.9264 percent in its open market operation, above forecasts of 1.84 to 1.89 percent, up 8 basis points from last week's level.
Traders focused on selling bonds at the short-end of the curve as Tuesday's result confirmed their suspicions that the PBOC still thinks there is room for the one-year bill auction yield to rise next week. The yield is widely expected to rise to at least 2 percent before the Lunar New Year, in mid-February.
But longer-term bond yields eased on Tuesday as the auction result plus other tightening steps taken in the past few months showed the PBOC's decisiveness to act early to rein in lending.
"The central bank is acting faster than expected to stabilise inflationary expectations," said a trader at a major Chinese bank in Shanghai. The China Banking Regulatory Commission said late on Monday that banks needed to control the pace of lending and mind credit quality, after loan growth in 2009 blew past government targets.
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