SHANGHAI, July 5 (Reuters) - China's yuan held steady on
Friday against the U.S. dollar as yields for Chinese government
bonds rose across the curve amid hints from the central bank
that it could embark on large-scale bond sales.
    The People's Bank of China (PBOC) has hundreds of billions
of yuan worth of medium- and long-term bonds at its disposal to
borrow and sell, it said on Friday - part of plan markets see as
an effort to cool a powerful bond rally.
    Higher China government bond yields and a narrower spread
against U.S. treasury counterparts could help alleviate pressure
on the yuan, said Samuel Tse, economist at DBS.
    Not everyone was convinced, however, that the PBOC could
have a lasting impact.
    The "forces pushing down yields seem unlikely to reverse
anytime soon," Julian Evans-Pritchard, head of China Economics
at Capital Economics, wrote in a note to clients.
    "Without wider monetary tightening, which doesn't appear to
be on the cards, the best the PBOC can probably hope to achieve
is to engineer a short-term pause to the bond rally," he added.
    Spot yuan opened at 7.2630 per dollar and was
trading at 7.2694 as of 0254 GMT, 4 pips firmer than the
previous late session close and 1.97% weaker than the midpoint.
    Prior to the market opening, the PBOC set the midpoint rate
, around which the yuan is allowed to trade in a 2%
band, at 7.1289 per dollar, 1,415 pips firmer than a Reuters'
estimate.
    Also supporting the yuan was a weaker dollar. The
dollar index dropped to 105.02 on Friday, near a 3-week low. 
    Among Chinese government bonds, the 10-year tenor
 was up over 1 basis point after touching a 22-year
low earlier this week.
    The yuan is 2.3% weaker this year. It has been under
pressure since early 2023 due to a moribund property sector,
anaemic consumer spending and a struggling stock market. The
bond rally since the start of this year has only added to the
pain.
    "We continue to remain bearish on the yuan especially given
the subtle change in FX stance of PBOC recently," Maybank
analysts said in a note. 
    In cash settlement transactions, the yuan was quoted at
 7.2718 per dollar, implying that in the shortest
tenor deals it had already hit its lower end of daily trading
band.
 
Key onshore vs offshore levels:
    • Overnight dollar/yuan swap onshore -23.00 pips vs.
offshore -23.00
    • Three-month SHIBOR 1.9 % vs. 3-month CNH HIBOR
3.1 % 
 
LEVELS AT 02:54 GMT
    
 INSTRUMENT           CURRENT  UP/DOWN(-  % CHANGE    DAY'S  DAY'S 
                      vs USD   ) VS.      YR-TO-DATE  HIGH   LOW
                               PREVIOUS                      
                               CLOSE %                       
 Spot yuan