Deflation warning spurs declines in 'floaters'

China's floating-rate bonds had their longest declines in a year after a central bank board member warned the world's second-biggest economy can't rule out a "short period" of deflation.

The notes fell 0.3 percent in the past three weeks, paring this quarter's gain to 1.1 percent, less than half the 2.5 percent return for fixed-rate securities, according to Chinabond, the nation's biggest debt clearing house. So-called floaters, whose coupons are reset as benchmark rates change, gained 2.6 percent in the United States over the period, a Barclays Capital index shows.

China's four-month decline in producer prices and slowing consumer-price increases will hurt profits, restrict investment and slow economic growth, Song Guoqing, a member of the People's Bank of China's monetary policy committee, said on Saturday.

China Daily - Agencies