China Government Bond Yields Edge Away From Cycle Lows On PBoC Comments

The China Government Bond Curve has bear-steepened, with yields 2-5bps higher across benchmarks after a PBOC official’s comments suggest low yields have deviated from sound economic fundamentals. Other onshore reports (Shanghai Securities News) noted that PBoC action in the secondary bond market should not be misinterpreted as QE by the central bank.

• Currently, the 10-year yield stands at 2.246%, up from yesterday's cycle low of 2.215%.
• Today’s movement follows observations by Bloomberg indicating that local credit yields in China have reached their lowest levels ever, as investors seek higher returns by investing in corporate bonds amidst a liquidity-rich financial system. (See BBG link)
• Moreover, it comes after the CH-US 10-year yield differential recently pushed to a fresh cycle high of 239bps, surpassing the previous high of 226bps set in October last year.
• The US tsy 10-year is currently 2bps cheaper at 4.62% in today’s Asia-Pac session after reaching a fresh YTD yield high of 4.69% last week.
• In contrast, South Korean Sovereign Bonds flat to 1bp cheaper across maturities beyond the 1-year as the KRW rally continued with buoyant equities.
• April consumer sentiment printed unchanged. Inflation expectations edged slightly lower, but the BoK may need to see more evidence of improvement before easing policy or shifting to a strong easing bias.