MNI BRIEF: China Passenger Car Sales Up In November Y/Y

MNI China Daily Summary: Monday, December 9

MNI BRIEF: China To Strengthen Policy Easing In 2025: Poliburo

MNI BRIEF: Mexico Inflation Down To 4.55% In November

MNI BRIEF: China Nov CPI Slows To 5-Month Low Of 0.2% Y/Y

MNI: PBOC Sets Yuan Parity Higher At 7.1870 Mon; -1.39% Y/Y

MNI:US OCT WHOLESALE INV 0.2%; SALES -0.1%

EZ/UK Bond Supply Calendar: Austria, UK Auction on Tuesday

MNI JAPAN Q3 GDP REV +0.3% Q/Q; PRELIM +0.2%; MEDIAN +0.2%

MNI EXCLUSIVE: EU-Mercosur Deal Close, But Likely Short-Lived - Officials

AUSTRALIA: 2025 Election Outcome Looking More Uncertain According To Newspoll

© 1982-2024 MNI. All rights reserved.
Terms | Privacy
Log Out
Free Trial

CHINA: Multiple Factors Supporting Bond Demand, Sub 2% 10yr Yield Likely To Stay

CHINA
EM BulletAPACChinaEmerging Market NewsBulletMarketsFixed Income BulletsForeign Exchange Bullets
  • China’s Finance Minister Lan Fo’an has indicated via a government publication that China will ‘accelerate bond issuance in order to speed up the use of proceeds while it resolutely curbs hidden debts.’ (per BBG).
  • The addition of the CNY6tn quota for local issuance comes with it additional oversight from the Central Government to move away from off balance sheet, non-official financing.
  • The uptake from the quota so far has been strong, with issuance strong particularly in longer dated securities.
  • Despite this issuance, the curve has continued to flatten as yields move lower with the 10YR government bond breaking through the technical level of 2.0% this week. 

  • The tailwind for bonds has been demand driven, with government policy the main player.
  • Authorities have supplemented the daily 7-day reverse repo program with a direct reverse repo program with a maturity of 3 months and by all accounts, some of the proceeds from this program is going into government bonds.
  • To add, the negotiable certificates of deposit (“NCD”) market has seen yields move significantly lower as a result of direct policy intervention by authorities. NCD’s are a commonly used funding tool by banks that the money market funds purchase.
  • The move lower in NCD yields (1YR curve now below 1.8%) has seen a shift by some funds into the  government bond market in search of additional yield from longer dated bonds.
  • The move lower in NCD rates is as a result of various policies including instructing domestic banks to lower deposit rates on deposits place with them by other financial institutions. The market dynamic now is such that bank deposits and NCD’s offer historically low yields.
  • Additionally, the collapse in the yield at the front end makes bond financing for investors as cheap as it has ever been.
  • When coupled with the uncertainties emanating from the White House with respect to tariffs weighing heavy on China equity markets, everything adds up to demand for bonds.   
  • Chinese authorities will understand the optics of an inverted yield curve and on current trajectory, that is a possibility.
  • What is more likely is further policy implementation gradually, which will likely suppress front end yields. For CGB10YR the bias is that the break sub 2.00% will be a sustained. Citi noted this week that 1.70% is a reasonable target for the 10yr yield (BBG). A medium to longer term move to 1.50% can't be ruled out. 
389 words

To read the full story

Close

Why MNI

MNI is the leading provider

of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.

Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
  • China’s Finance Minister Lan Fo’an has indicated via a government publication that China will ‘accelerate bond issuance in order to speed up the use of proceeds while it resolutely curbs hidden debts.’ (per BBG).
  • The addition of the CNY6tn quota for local issuance comes with it additional oversight from the Central Government to move away from off balance sheet, non-official financing.
  • The uptake from the quota so far has been strong, with issuance strong particularly in longer dated securities.
  • Despite this issuance, the curve has continued to flatten as yields move lower with the 10YR government bond breaking through the technical level of 2.0% this week. 

  • The tailwind for bonds has been demand driven, with government policy the main player.
  • Authorities have supplemented the daily 7-day reverse repo program with a direct reverse repo program with a maturity of 3 months and by all accounts, some of the proceeds from this program is going into government bonds.
  • To add, the negotiable certificates of deposit (“NCD”) market has seen yields move significantly lower as a result of direct policy intervention by authorities. NCD’s are a commonly used funding tool by banks that the money market funds purchase.
  • The move lower in NCD yields (1YR curve now below 1.8%) has seen a shift by some funds into the  government bond market in search of additional yield from longer dated bonds.
  • The move lower in NCD rates is as a result of various policies including instructing domestic banks to lower deposit rates on deposits place with them by other financial institutions. The market dynamic now is such that bank deposits and NCD’s offer historically low yields.
  • Additionally, the collapse in the yield at the front end makes bond financing for investors as cheap as it has ever been.
  • When coupled with the uncertainties emanating from the White House with respect to tariffs weighing heavy on China equity markets, everything adds up to demand for bonds.   
  • Chinese authorities will understand the optics of an inverted yield curve and on current trajectory, that is a possibility.
  • What is more likely is further policy implementation gradually, which will likely suppress front end yields. For CGB10YR the bias is that the break sub 2.00% will be a sustained. Citi noted this week that 1.70% is a reasonable target for the 10yr yield (BBG). A medium to longer term move to 1.50% can't be ruled out.