China’s economy is widely expected to grow by more than 5% this year.
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Chinese government bonds rose on Monday on expectations that Beijing may expand stimulus measures to boost the economy, with the 10-year bond yield falling below the key psychological level of 2% and hitting multi-decade lows.
London Stock Exchange data showed that China’s 10-year government bond yield fell to 1.9636% on Monday, the lowest level in 22 years, inversely with the price trend. The 30-year Treasury bond yield fell to 2.164%.
Tommy Xie, head of Asia macro research at OCBC Bank, said in a note that the bond rally was mainly driven by expectations of further cuts in commercial banks’ reserve requirement ratios, which determine how much cash banks must hold in reserves. amount.
The decline in yields is The People’s Bank of China announced on Friday Last November, China injected 800 billion yuan into the banking system through so-called “direct reverse repurchase operations.” An increase from the capital injection of 500 billion yuan in October.
The move was aimed at “maintaining sufficient liquidity in the banking system at a reasonable level,” an official statement said.
In addition, the central bank also stated that it has Net purchases of 200 billion The open market operation of RMB government bonds in November was aimed at “increasing the counter-cyclical adjustment of monetary policy.”
Investment has poured into the safety of Chinese government bonds amid slowing economic growth and a lack of attractive investment options, as Chinese authorities try to stem the bond market’s rise.
China’s central bank has warned that bubbles could be destabilizing as investors chase government bonds while avoiding more volatile assets.
“The market is still pricing in some fiscal stimulus support early next year,” abrdn investment director Edmund Goh told CNBC.
While China’s property market is showing some encouraging signs of recovery, “we haven’t seen any improvement in domestic economic data over the past few months,” Wu said, stressing that lower yields reflected the economic situation.
“Without any meaningful fiscal stimulus, China’s economy will slip into deflation,” he added.
On Monday, the offshore yuan fell 0.45% against the U.S. dollar to 7.2795.
Pan Gongsheng, governor of the People’s Bank of China, said at a high-level meeting in November that the authorities planned to maintain supportive monetary policy and said the reserve requirement ratio would be cut by 25 to 50 basis points before the end of the year. He also suggested that the reverse repurchase rate may be lowered by another 20 basis points in the seven days before the end of the year.
“Resistance to further downside (bond yields) is likely to increase due to rising government bond issuance and upcoming major meetings,” OCBC Bank’s Xie noted.
China is expected to hold a closely watched meeting of the Politburo, the ruling Communist Party’s top decision-making body, followed by the annual Central Economic Work Conference, where policymakers will set economic plans and growth targets for 2025. Held left and right.
At these meetings, Beijing is likely to announce additional stimulus measures, “which could change market dynamics and narrow the scope for further declines in yields,” OCBC Bank’s Xie added.
Eugene Hsiao, head of China equity strategy at Macquarie Capital, noted that “although Chinese government bond yields are currently close to 2%, the spread over the U.S. 10-year Treasury bond yield has actually narrowed. “This is a net positive for Chinese stock market flows,” he added.
China’s 10-year bond yield remains well below the U.S. 10-year bond yield of more than 4%.
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