China’s 10-Year Bond Yield Falls to 2% for First Time on Record
(Bloomberg) -- China’s benchmark bond yield fell to 2% for the first time on record, as the central bank announced a package of monetary policy easing measures to support growth.
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The 10-year yield declined as much as three basis points to 2% after the People’s Bank of China on Tuesday announced a raft of stimulus measures including reductions to its policy rate, lenders’ reserve-requirement ratio and outstanding mortgage rates.
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China’s government bonds have been rallying this year as concern over the economy and the prolonged property crisis continues to push investors toward haven assets. The relentless rally has stoked concern among authorities that the bursting of a liquidity-fueled bubble could jeopardize 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% level, but I am personally expecting it to move below 2% at some point,” said Lynn Song, chief economist for greater China at ING Bank NV. “If we see more easing later in the year, it would not surprise me to see it move down to 1.8% or so.”
The Hang Seng China Enterprises Index, a gauge of Chinese stocks listed in Hong Kong, jumped as much as 2.8%.
--With assistance from Iris Ouyang.
(Adds chart and updates background on PBOC pushback to bond rally.)
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