China Bond Yield Drops to Lowest in a Decade as Economy Falters

  • Sovereign notes extend gains as credit growth misses estimates
  • There’s now consensus that fundamentals are weak, trader says

Chinese government bonds extended gains, with the 10-year yield falling to the lowest level since at least 2006, as weaker-than-expected credit expansion and industrial output reignited concerns over economic growth.

The yield on sovereign notes due May 2026 fell three basis points to 2.66 percent as of 4:57 p.m. in Shanghai, according to National Interbank Funding Center prices. That’s the lowest for a similar-maturity benchmark yield since Bloomberg started compiling ChinaBond data in 2006. The 20- and 30-year sovereign yields declined to 3.10 percent and 3.25 percent on Thursday, respectively, also the lowest for both since at least 2006.

China’s broadest measure of new credit increased at the slowest pace in two years in July, adding to signs that a stabilization in economic growth is losing steam, according to data released Friday. Figures earlier in the day showed industrial production and investments weakened as well. Demand for the relative safety of government debt has been driven also by a rising number of company defaults, with a Chinese shipbuilder becoming the latest to renege this week.

“Today’s financial data are much weaker than expected, plus the industrial and investment figures that also fall below estimates,” said Wu Chunan, a trader at China Zheshang Bank Co. “There is now a consensus that economic fundamentals are weak.”

Cash Injections

The People’s Bank of China injected a net 90 billion yuan ($13.5 billion) this week via open-market operations, data compiled by Bloomberg show. The seven-day repurchase rate, a gauge of interbank funding availability, fell for the first time in six days, retreating three basis points to 2.33 percent, weighted average prices from the National Interbank Funding Center show.

The cost of one-year interest-rate swaps, the fixed payment to receive the floating seven-day repo rate, fell three basis points to 2.41 percent, data compiled by Bloomberg show. That’s the biggest drop since June 24.

— With assistance by Helen Sun, and Yuling Yang

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