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(Bloomberg) — China’s benchmark bonds are heading for their best month since October, as abundant liquidity offsets concerns over upcoming debt supply.
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Yields on the 10-year sovereign bond fell just below 1.75% on Tuesday, marking a drop of around seven basis points this month. Ample cash is keeping a lid on supply concerns even as the government prepares to kick off its ultra-long special bond issuance with a record 30-year offering on Friday.
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“The bull run in the Chinese government bond market has continued, with 10-year Chinese government bond yields trading lower to 1.75%,” said Jeffrey Zhang, a strategist at Credit Agricole CIB. Rich liquidity and limited bond supply risks are supporting sentiment, he said.
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The rally highlights the status of Chinese debt as a global haven alternative, bolstered by Beijing’s perceived insulation from energy shocks sparked by the Iran conflict.
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Underpinning that sentiment is the central bank’s stance on liquidity.
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The People’s Bank of China has allowed cash conditions to remain loose to support the economy, with the overnight borrowing rate lingering near the lowest level since 2023. Daily volume of overnight repo transactions hit a record high of 8.5 trillion yuan ($1.2 trillion) on Monday.
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This surge in activity provides an accommodative backdrop, with analysts seeing scope for yields to fall further.
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Zhongtai Securities expects further monetary easing by the PBOC to push the 10-year yield down toward 1.6% this year, it said in a report on Sunday. That’s a level last seen in Feb. 2025.
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—With assistance from Jing Zhao.
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English (US)