China’s 10-year bond yield falls to 2% for first time on record

CHINA’S benchmark bond yield fell to 2 per cent for the first time on record, as the central bank announced a package of monetary policy easing measures to support growth.

The 10-year yield declined as much as three basis points to 2 per cent after the People’s Bank of China (PBOC) on Tuesday (Sep 24) announced a raft of stimulus measures including reductions to its policy rate, lenders’ reserve-requirement ratio and outstanding mortgage rates.

China’s government bonds have been rallying this year as concern over the economy and the prolonged property crisis continues to push investors towards haven assets. The relentless rally has stoked concern among authorities that the bursting of a liquidity-fuelled bubble could jeopardise financial stability.

Beijing’s pushback has gone from verbal warnings to direct intervention but that has had little effect on the bond frenzy. Some Chinese government debt that’s mostly owned by the PBOC was seen being sold in the secondary market, traders said earlier this month, in a possible sign of official intervention to prop up falling yields.

“It will be interesting to see if the PBOC steps in again to try and protect the 2 per cent level, but I am personally expecting it to move below 2 per cent at some point,” said Lynn Song, chief economist for greater China at ING Bank. “If we see more easing later in the year, it would not surprise me to see it move down to 1.8 per cent or so.”

The Hang Seng China Enterprises Index, a gauge of Chinese stocks listed in Hong Kong, jumped as much as 2.8 per cent. BLOOMBERG