China’s 10-Year Bond Yield Caps Biggest Monthly Jump Since 2013

China’s sovereign bonds fell, pushing the 10-year yield to its biggest monthly gain since August 2013, as the government rolled out measures to support the economy.

To help revive a slumping real-estate market, the authorities on Monday lowered the down payment required to buy a second home and cut the amount of time for which properties must be held to win a sales-tax exemption. The government on March 28 detailed a $40 billion plan to revive an ancient Silk Road trade route to boost external demand. Yields also surged as a debt-swap plan increased the supply of bonds.

The yield on benchmark 10-year notes compiled by ChinaBond climbed 22 basis points this month to 3.58 percent as of Monday. Tuesday’s fixing will be released after the market closes. The yield slumped to 3.34 percent on Feb. 16, the lowest since Aug. 2012, as the central bank cut interest rates and reserve-requirement ratios to help achieve a 7 percent growth target that is the slowest in more than 15 years.

“The measures will help the real estate market and impose pressure on bonds,” said Qu Qing, a Beijing-based analyst at Huachuang Securities Co. “Along with the Silk Road initiative, there will be a positive impact on the economy in the medium term.”

The property measures exceeded expectations, and lowering down payments may boost new home sales nationwide by 5 percent, according to China International Capital Corp. analyst Eric Zhang. The yield on sovereign notes due September 2024 rose four basis points, or 0.04 percentage point, to 3.66 percent as of 4:31 p.m. in Shanghai, the highest since Jan. 4, according to prices from the National Interbank Funding Center.

PBOC Policies

The government will probably permit more swaps after the plan to convert as much as 1 trillion yuan ($161 billion) of high-yielding securities into municipal notes with lower yields is completed, Finance Minister Lou Jiwei said on March 27.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repurchase rate, rose 16 basis points in March to 3.54 percent, the first monthly increase this year, data compiled by Bloomberg show. It fell seven basis points Tuesday.

The People’s Bank of China lowered the interest rates it paid in reverse-repurchase operations three times in March, and injected funds into the financial system in open-market operations last week for the first time in a month. The central bank sold 25 billion yuan of seven-day reverse repos Tuesday at 3.55 percent, according to a statement on the website.

The seven-day repo rate, a gauge of interbank funding availability, declined 100 basis points this month to 3.82 percent, according to a weighted average compiled by the National Interbank Funding Center. That’s the biggest drop since February 2014. The rate fell 14 basis points Tuesday.

— With assistance by Helen Sun

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