China Bonds Advance as 10-Year Yield Declines to Six-Month Low

  • Central bank boosts fund additions to financial system
  • Second-half growth could be weaker than in the first: ANZ

China’s government bonds advanced, pushing the 10-year yield to the lowest level since January, amid lingering concern over the economy and increasing central bank cash injections.

The People’s Bank of China added a net 105 billion yuan ($15.7 billion) through open-market operations this week, after withdrawing funds in the five days through July 15, data compiled by Bloomberg show. While gross domestic product growth beat estimates for the second quarter, a surge in credit growth fueled concern about the sustainability of the expansion. Also, fixed-asset investments rose at the slowest pace since 2000 in June, according to data released last week.

“The economic expansion in the second half of this year may be weaker than in the first as latest data like investment are still pointing to weak demand,” said David Qu, markets economist at Australia & New Zealand Banking Group Ltd. in Shanghai. “There’s ample liquidity in the market.”

The yield on bonds due May 2026 fell one basis point to 2.79 percent as of 4:37 p.m. in Shanghai, according to National Interbank Funding Center prices. That’s the lowest level for a benchmark security since January, ChinaBond data show. Yields on 20- and 30-year sovereign bonds declined by the most since at least February on Wednesday, ChinaBond data show.

The rally has been spurred by ample liquidity, which is encouraging institutions to buy long-maturity bonds, according to Wu Chunan, a bond trader at China Zheshang Bank Co. The PBOC auctioned 50 billion yuan of treasury deposits Thursday, boosting the supply of cash in the financial system.

— With assistance by Helen Sun

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