Updated January 22nd, 2024 at 18:15 IST

China's yield curve flattens as investors flock to 30-year bonds amid A share losses

The yields on China's 30-year government bonds reached a record low of 2.7185%.

Business Desk
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Flag of China | Image:Pixabay

China's yield shift: China on Monday, experienced a flattening of its yield curve, driven by an increase in demand for ultra-long 30-year government bonds. Investors turned to these safer, long-term investments following losses in the A share market. The yields on China's 30-year government bonds reached a record low of 2.7185 per cent, and the most-traded treasury futures for the same duration hit an all-time high since the contract's inception.

This led to a narrowing of the gap between the 30-year Chinese government bonds (CGB) and the benchmark 10-year contract, reaching its tightest level since March 2008. The inverse relationship between yields and bond prices resulted in falling yields as prices increased.

The heightened interest in longer-dated government bonds reflected a decline in investor confidence in the world's second-largest economy, with some traders suggesting that monetary easing might become inevitable if the current trend proves difficult to reverse.

Amid these developments, China's CSI300 Index, representing blue-chip stocks, experienced a 1.6 per cent drop to its lowest closing level in nearly five years, while the Shanghai Composite index recorded its most significant one-day decline since April 2022, falling by 2.7 per cent.

Furthermore, China opted to keep its benchmark lending rates unchanged during the monthly fixing on Monday. Beijing's limited room for monetary easing, coupled with downward pressure on the yuan, raised concerns. Analysts at Goldman Sachs emphasised the need for further monetary easing to stimulate growth and sentiment, considering elevated real interest rates and persistent economic challenges. They maintained their projections for two policy rate cuts of 10 basis points each in the first and third quarters of the year, along with two reductions in banks' reserve requirement ratio (RRR) of 25 basis points each in the second and fourth quarters.

(With Reuters Inputs)

Published January 22nd, 2024 at 18:15 IST

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