What will happen if Chinese gov. raises interest rates?

Closed Thread
Page 1 of 2 1 2 LastLast
  1. #1

    Join Date
    Feb 2008
    Posts
    186

    What will happen if Chinese gov. raises interest rates?

    I wouldn't be surprised if the Chinese government raised the interest rates in the near future more than the US will raise its interest rates.

    What will happen to bonds in Chinese currency? Of course the Chinese currency will appreciate, but will the price of the bonds raise or drop?

    Thanks.


  2. #2

    Join Date
    Feb 2007
    Location
    Tai Kok Tsui
    Posts
    997
    Quote Originally Posted by pinko:
    I wouldn't be surprised if the Chinese government raised the interest rates in the near future more than the US will raise its interest rates.

    What will happen to bonds in Chinese currency? Of course the Chinese currency will appreciate, but will the price of the bonds raise or drop?

    Thanks.
    A rise in the interest rates will make it so the demand for bonds to increase and then the price of bonds will decrease. Stocks will also decrease due to people moving their investments into low risk bonds and the decrease in consumption will make it so business profits shrink and people will move their money out of their stocks.

    So to answer your question, the price of bonds will drop.

  3. #3

    Join Date
    Feb 2008
    Posts
    186
    Quote Originally Posted by BryanL:
    A rise in the interest rates will make it so the demand for bonds to increase and then the price of bonds will decrease
    Thanks, that's what I thought. But I think you meant that the 'demand for bonds will decrease', right?

    By the way, I read that the interest rates given by banks in China for Yuan in saving accounts is higher than the interest rates given for Yuan in HK? Is that so?

  4. #4

    Join Date
    Nov 2005
    Location
    Cramped island
    Posts
    5,585

    let's put it in the proper context.

    CNY is a capital controlled currency. there is an onshore and an offshore market.
    i am not even sure if they actually have cny treasury and bonds actively traded.. so your question could be kind of moot in this context.


  5. #5

    Join Date
    Feb 2007
    Location
    Tai Kok Tsui
    Posts
    997
    Quote Originally Posted by pinko:
    Thanks, that's what I thought. But I think you meant that the 'demand for bonds will decrease', right?
    No, demand would increase because the higher interest rate will make bond's a more attractive investment. If the interest rate is let's say 5%, and your stock investment can maybe yield 6-8%, why take a risk when you can have a guaranteed 5% bond.

    The high demand drives the price down.

  6. #6

    Join Date
    Mar 2006
    Location
    Hong Kong
    Posts
    150

    Sorry for the ignorance. How does the high demand drive the price down??


  7. #7

    Join Date
    Nov 2005
    Location
    Cramped island
    Posts
    5,585

    high demand drive prices up but the yield down


  8. #8

    Join Date
    Nov 2006
    Posts
    61
    Quote Originally Posted by BryanL:

    The high demand drives the price down.
    BS.


    Rate rise=> your old bonds which have a lower rate on them are worth less bcos the market gives u a better rate.

  9. #9

    Join Date
    Nov 2005
    Location
    Cramped island
    Posts
    5,585

    huh? i am just commenting on the statement why does high demand drive price down.


  10. #10

    ya.. how can high demand drives price down??

    high depend leads to high price... supply/demand right?


    if not, then i blame my high school teacher


Closed Thread
Page 1 of 2 1 2 LastLast