China's Leverage Campaign Is Turning Bond Market Upside Down
- Liquid market has become paramount consideration, trader says
- Curve likely to stay flat on long-term policy focus: Citic
Impact of China's Deleveraging Efforts
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China’s anti-leverage campaign is causing a distortion that hasn’t happened in the nation’s $9 trillion bond market in at least a decade.
The five-year sovereign yield is now higher than that on debt due in a decade, the first time the curve has inverted for the tenor in data going back to 2006. This is due mainly to a surge in the shorter-term yield because of a deleveraging campaign, and a limited advance in the 10-year cost as economic growth concerns raise demand for safety.