China’s bond selloff resumes with yield rising to one-year high

CHINA’S government bond yields rose to the highest level in nearly a year amid an improving outlook for the world’s second-largest economy. 

The yield on China’s 10-year government bond rose as much as four basis points to 2.8525 per cent, the highest since December.

Demand for haven assets declined as bets on further easing of the nation’s Covid policies and fresh measures to support the property sector fuelled optimism on the economy.

A rise in interbank rates on waning expectation of aggressive monetary stimulus also weighed on the debt market.

“Some fixed-income asset management products were redeemed in large amounts, which prompted liquidation of bonds and triggered some stop-loss selling,” said Tan Songheng, general manager of fixed income investment at Bank of Sanxiang. “Rising borrowing costs also weighed on leverage positions.”

The People’s Bank of China sought to calm concerns over tightening liquidity on Tuesday. It said in a statement that it injected more than 1 trillion yuan of cash into the financial system in November, a day after the yield on benchmark government bond surged the most in six years.

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Selling from mutual funds and banks’ wealth management units was heavy in the afternoon, which pushed yields higher across the curve, according to traders who asked not to be named as they are not authorised to speak publicly.

“We have probably seen the lows in yuan rates and the overall trend going forward is likely to be an upward one,” said Frances Cheung, a Singapore-based rates strategist at Oversea-Chinese Banking Corp. “We are more inclined to see the impact of the latest support measures as more lasting, beyond supporting short-term risk sentiment.” BLOOMBERG