Free Trial

(M2) RBA Presses Prices Further


HKMA Intervenes In HKD


Bull Cycle Intact

Real-time Actionable Insight

Get the latest on Central Bank Policy and FX & FI Markets to help inform both your strategic and tactical decision-making.

Free Access
MNI (London)
     BEIJING (MNI) - China's bond market is unlikely to see yields much lower in
the near-term, as concern over increased supply in Q2 overshadows positive news
to weigh on market sentiment.
     After a strong rally in the first quarter, yields on the 10-year China
Government Bond and China Development Bank Bond rose 1 and 3.6 basis points this
     Bonds were driven higher in the first quarter, in large part by favourable
liquidity conditions. Liquidity will likely remain favourable throughout Q2 to
help facilitate the implementation of new regulation, but any benefit appears to
be already priced in.
     Easing worries on regulation in the bond market have also contributed to
the Q1 downtrend in yields, but unless there are further announcements easing
regulatory conditions, it is unlikely to be a reason push yields lower.
     One factor seen weighing on the market in the second quarter is the
expected surge in Q2 issuance, particularly an increase in supply of local
government bonds. Overall net issuance of government and policy bank bonds in Q1
were lower than the same period last year for CNY146 billion, but the situation
is likely to change in Q2. 
     Some bond investors, especially those long-term ones like banks, still
appear cautious about the market. Despite the Q1 rally, many investors and
traders said trading profits were curtailed by cautious trading. The steepening
of the curve, helped by flows into the shorter end of the curve, underlined the
defensive trading strategies. The term spread between 1-year and 10-year CGB
widened from 9 basis points at the end of 2017 to 51 basis points on Thursday.
More bond supplies will potentially lead to upward pressures on primary market
rates, and then on secondary market yields.
     The market could rally, but it would need weaker-than-expected economic
conditions, falling credit demand, weakening of regulation policies and/or an
escalation of trade wars or other unexpected events weighing on risk appetite.
     Of those factors, both an escalation in the trade dispute between China and
the U.S. or a worsening of the situation over Syria could fuel a
flight-to-safety bond rally in quick order, with any subsequent slowing of the
economy further boosting bonds.
--MNI London Bureau; tel: +44 203-586-2225; email:
--MNI Singapore Bureau; +65 8233 2326; email:
--MNI Beijing Bureau; +86 10 85325998; email:
[TOPICS: M$A$$$,M$Q$$$,MR$$$$,M$$FI$]
MNI London Bureau | +44 203-865-3812 |

To read the full story

Why Subscribe to

MNI is the leading provider

of news and intelligence specifically for the Global Foreign Exchange and Fixed Income Markets, providing timely, relevant, and critical insight for market professionals and those who want to make informed investment decisions. We offer not simply news, but news analysis, linking breaking news to the effects on capital markets. Our exclusive information and intelligence moves markets.

Our credibility

for delivering mission-critical information has been built over three decades. The quality and experience of MNI's team of analysts and reporters across America, Asia and Europe truly sets us apart. Our Markets team includes former fixed-income specialists, currency traders, economists and strategists, who are able to combine expertise on macro economics, financial markets, and political risk to give a comprehensive and holistic insight on global markets.