China’s government bonds experienced a decline as the appetite for safe-haven assets diminished in light of the stimulus-driven stock market rally. On Tuesday, the yield on China’s most actively traded 10-year bond increased by two basis points to 2.18%. This rise in yields occurred in the lead-up to the Golden Week holiday, during which a series of measures aimed at revitalizing the struggling property sector sparked significant stock market gains.
On the same day, Chinese stocks maintained their upward momentum, with the benchmark CSI 300 Index rising nearly 11% in early trading before pulling back slightly. Additionally, the onshore yuan fell by as much as 0.7%, marking its largest decline in almost two months.
The bond selloff highlights a growing optimism surrounding the Chinese economy as investors shift their focus to riskier assets. This marks a significant shift in sentiment from the previous month when bond yields hit record lows amid concerns about China’s ability to achieve its growth target of approximately 5% for the year.
The abrupt decline in bond prices could heighten the risk of redemptions from wealth management products that had driven the record rally in sovereign debt throughout much of this year. Such a scenario could create a negative feedback loop, where retail investors hastily liquidating their debt products exacerbates the market downturn.
Lynn Song, Greater China chief economist at ING Bank NV, noted, “This trend likely reflects a portfolio rebalancing from bonds to equities, as many investors chase the equity rally.” She does not anticipate a vicious cycle of declining bond prices and believes attention will return to China’s challenging growth outlook.
During a briefing, Zheng Shanjie, Chairman of the National Development and Reform Commission, acknowledged that China’s economy is facing increasing downward pressure.
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