China’s attempt to rein in government-bond rally will only slow it temporarily: analysts
- ‘Even with intervention, changing the incentive for investors seeking stable yield could prove challenging,’ Natixis analyst says
An attempt by the People’s Bank of China (PBOC) to stem a rally in government bonds is falling flat as growth worries persist. Any potential interventions might only slow the momentum temporarily, as the fundamentals have yet to turn the corner, analysts said.
The bond market rebounded quickly to recover from the shock of the central bank’s announcement on Monday that it would borrow notes. Yields on 10- and 30-year Chinese government bonds closed down 1.3 and 1.2 basis points on Tuesday to 2.24 per cent and 2.46 per cent, respectively, paring back gains and continuing to hover around record lows.
The move is seen as setting the stage for the bank to use treasury bond trading in the secondary market to adjust market liquidity and control the yield curve. However analysts suggested the intervention might only slow the rally temporarily, as current economic conditions do not warrant a major shift.
“The yields have been trending down for most of this year, mainly because the market is not so optimistic about the growth outlook,” said Gary Ng, an economist at Natixis in Hong Kong. “The macro trend is that China’s interest rates will continue to get lower to support the economy, and even the central bank finds it challenging to alter this trajectory.”
