China's Bonds Extend Worst Streak of Weekly Declines Since 2013

  • ING raises year-end yield forecast to 3.70% from 3.40%
  • Weekly decline pares on Thursday and Friday amid injections

China’s 10-year government bonds fell for a seventh week, building on the longest run of declines since 2013, amid concerns the nation’s deleveraging campaign will drive borrowing costs up further.

The yield on 10-year sovereign debt climbed eight basis points this week to close Friday at 3.65 percent, according to data compiled by Bloomberg. That’s the longest streak since the third quarter of 2013, when bonds tumbled after a cash crunch drove the benchmark money rate to a record high of 12.45 percent. The 10-year sovereign yield climbed to the highest level in two years on Wednesday.

China has issued a raft of directives aimed at containing financial risks, spurring concerns that money will be pulled from the market. On Thursday, regulators asked financial institutions to submit data on the costs of interbank borrowing by the end of the day, Shanghai Securities News reported on its website on May 11, citing unidentified people. That followed a Financial News report that said the central bank is increasing coordination with other financial regulators.

“Credit tightening has turned 2017 into a difficult year for investors in China’s financial assets,” said Tim Condon, head of Asia research at ING Groep NV in Singapore. He revised his forecast for China’s 10-year sovereign yield to 3.70 percent from 3.40 percent this week. “The PBOC is slowly tightening policy. Our yield forecast revision acknowledges the impact of the tightening that’s happened so far and that which we see coming,” he said.

The yield on China’s 10-year bonds pared its weekly advance Friday, declining three basis points as the People’s Bank of China granted 459 billion yuan ($66.5 billion) of loans to commercial lenders via the Medium-term Lending Facility.

— With assistance by Helen Sun

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