Chinese banks pay record rates for government bills

Interest rates for Chinese government bonds are at their highest level since 2006, as rising yields stoke fears the government will further tighten money supply, Bloomberg reported. The People’s Bank of China received 6.5% on six-month bills issued on Tuesday and also increased the yield on one-year bills by eight basis points to 3.58%, compared with a 0.07% yield on 12-month US Treasuries. As inflation continues to outpace government targets, rising government bond yields can be an indicator of future interest-rate hikes. The current one-year deposit rate is 3.50%, while inflation has risen to 6.5% for July. The central bank has raised benchmark rates three times this year, though some analysts don’t expect a further increase until 2012. The bank has left the reserve requirement ratio for banks unchanged since June; it currently stands at 21.5%.