Yuan forwards fall most in a week on delayed Dubai debt

The U.S. Dollar Index, a gauge of the greenback against currencies of six trading partners, rose for a second day after state-owned Dubai World said it would seek a “standstill” agreement to delay repayment on some of its $59 billion of debt. European Union delegates including Central Bank President Jean- Claude Trichet are scheduled to meet Chinese Premier Wen Jiabao on Nov. 29 in Nanjing to discuss the nation's foreign-exchange policy. China's government bonds gained.

“It's obvious that risk-aversion sentiment is dominating the non-deliverable forward market these days,” said Liu Xin, an analyst at the Hong Kong branch of Bank of Communications Ltd., China's fifth-biggest lender. “As more countries press China on the issue of appreciation, the government may have to reconsider the yuan policy.”

Twelve-month non-deliverable yuan forwards fell 0.3 percent to 6.6371 per dollar as of 3:28 p.m. in Hong Kong, according to data compiled by Bloomberg. In the spot market, the yuan was little changed at 6.8300 from 6.8265 Thursday, according to China Foreign Exchange Trade System.

The central bank set the yuan's reference rate at 6.8269 against the dollar, little changed from last week. It has kept the daily move in the rate to no more than 0.01 percent since Oct. 9.

Forwards are agreements to buy and sell assets at current prices for delivery at a future specified time and date. Non- deliverable contracts are settled in dollars.

Government bonds gained this week on speculation demand from banks and insurers strengthened before the year-end with ample funds available.

Yields on treasury bonds also declined after the nation's first 50-year bond was sold at a lower-than-expected yield at Friday's auction. The finance ministry sold 20 billion yuan (US$2.9 billion) of the debt at an average 4.3 percent, 20 basis points lower than the 4.5 percent median estimate in a Bloomberg News survey.

“There is abundant liquidity in the financial system,” said Yang Hui, a Beijing-based fixed-income analyst at Citic Securities Co., China's biggest listed brokerage.

Banks extended 253 billion yuan in local-currency loans in October, compared with 516.7 billion yuan the previous month, the People's Bank of China said Nov. 11. Local insurers received 78 billion yuan of premiums in October, bringing their revenue in the first 10 months of the year to 936 billion yuan, the insurance watchdog said Nov. 20.

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