China's bond market, long buoyed by a rally driven by economic uncertainties, is now facing significant turbulence as government interventions intensify. The once-unstoppable surge in bond prices has stalled, with prices declining and trading activity dropping sharply. This shift comes as Beijing takes aggressive steps to prevent bond yields from falling too low, raising concerns about potential market imbalances.
Over the past two weeks, ten-year treasury futures have experienced their largest fortnightly drop in nearly a year, despite a slew of disappointing economic indicators that would typically signal more policy easing and bond buying. The Chinese government's efforts to temper the rally have led to a marked change in market sentiment, with state banks becoming heavy sellers and the People's Bank of China (PBOC) issuing warnings against excessive bond buying.
"We are seeing a new round of PBOC action," remarked Julio Callegari, Chief Investment Officer for Asia Fixed Income at J.P. Morgan Asset Management. Callegari, who has been reducing his long positions in Chinese government bonds in response to the central bank's rhetoric, notes that the market is now bracing for a period of increased bond issuance and potential yield stabilization.
Authorities' concerns about an asset bubble have led to the imposition of restrictions on the duration of new bond funds and heightened scrutiny of bond dealings by brokers and banks. This has caused ten-year yields to rise by nearly ten basis points from last week's record lows, while 30-year yields have also seen a modest increase.
The impact of these measures is evident, with bond trading volumes plummeting and the number of wealth management products falling below their net asset value reaching the highest level since March 2023. The market's reaction has been mixed, with some analysts, like Zhao Jian of the Atlantis Finance Research Institute, criticizing the authorities' actions as potentially damaging to market function and long-term stability.
Despite the current volatility, China's central bank governor Pan Gongsheng has reiterated the government's commitment to maintaining a supportive monetary policy and ensuring policy stability. However, the ongoing tug-of-war between market participants and authorities suggests that the bond market may continue to experience turbulence in the coming months.
As China approaches the end of the year with significant bond issuance still on the horizon, the market remains uncertain. Foreign investors, who have been attracted by favorable swap rates, may take this opportunity to book profits, adding another layer of complexity to an already volatile market. Meanwhile, domestic institutions like the Bank of Hangzhou are preparing for more fluctuations, anticipating trading opportunities as the market adjusts to the new reality.
(Source:www.reuters.com)
Over the past two weeks, ten-year treasury futures have experienced their largest fortnightly drop in nearly a year, despite a slew of disappointing economic indicators that would typically signal more policy easing and bond buying. The Chinese government's efforts to temper the rally have led to a marked change in market sentiment, with state banks becoming heavy sellers and the People's Bank of China (PBOC) issuing warnings against excessive bond buying.
"We are seeing a new round of PBOC action," remarked Julio Callegari, Chief Investment Officer for Asia Fixed Income at J.P. Morgan Asset Management. Callegari, who has been reducing his long positions in Chinese government bonds in response to the central bank's rhetoric, notes that the market is now bracing for a period of increased bond issuance and potential yield stabilization.
Authorities' concerns about an asset bubble have led to the imposition of restrictions on the duration of new bond funds and heightened scrutiny of bond dealings by brokers and banks. This has caused ten-year yields to rise by nearly ten basis points from last week's record lows, while 30-year yields have also seen a modest increase.
The impact of these measures is evident, with bond trading volumes plummeting and the number of wealth management products falling below their net asset value reaching the highest level since March 2023. The market's reaction has been mixed, with some analysts, like Zhao Jian of the Atlantis Finance Research Institute, criticizing the authorities' actions as potentially damaging to market function and long-term stability.
Despite the current volatility, China's central bank governor Pan Gongsheng has reiterated the government's commitment to maintaining a supportive monetary policy and ensuring policy stability. However, the ongoing tug-of-war between market participants and authorities suggests that the bond market may continue to experience turbulence in the coming months.
As China approaches the end of the year with significant bond issuance still on the horizon, the market remains uncertain. Foreign investors, who have been attracted by favorable swap rates, may take this opportunity to book profits, adding another layer of complexity to an already volatile market. Meanwhile, domestic institutions like the Bank of Hangzhou are preparing for more fluctuations, anticipating trading opportunities as the market adjusts to the new reality.
(Source:www.reuters.com)
