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China's red-hot bond market shows bets rising on monetary easing

[HONG KONG] All the negative headlines around US-China trade and a slowing domestic economy are supercharging the nation's bond market, as traders up bets on monetary easing.

The yield on China's 10-year sovereign debt dropped to 3.27 per cent on Monday, its lowest level since March 2017. The nation's government bonds have been among the world's best performing this year, with the yield declining 63 basis points, while Shanghai stocks and the yuan have slumped.

The central bank has cut the reserve requirement ratio for lenders four times in 2018, helping reduce the one-month interest borrowing rate to about 2.8 per cent from 4.9 per cent at the start of the year. While the rally faces hurdles as year-end demand for cash tightens liquidity, there is scope for gains to continue into 2019. Ming Ming, head of fixed-income research at Citic Securities, predicts the 10-year yield may fall to 3 per cent next year as the People's Bank of China eases.

The yield dropped 4 basis points on Monday. It's fallen every day bar one in the past two weeks.

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