Why Xi Jinping Needn't Worry About China's Yield-Curve InversionBy
China’s bond market has just turned upside down again. But unlike in the U.S. -- where an inverted yield curve can signal an impending recession -- there’s much less reason for President Xi Jinping to worry.
That’s because the anomaly is pretty much government-driven, with the central bank driving short-term rates higher to tamp down excessive leverage. Policy makers have stepped in on occasion to prevent excessive tightness, through cash injections or targeted easing. Yields also have climbed this week because of signs of an improving economy, with People’s Bank of China Governor Zhou Xiaochuan suggesting that growth may surprise to the upside.
Yields on the nation’s five-year government bonds climbed to 3.79 percent on Wednesday, surpassing the 10-year’s 3.74 percent. Both have surged this year amid the deleveraging campaign, with short-term borrowing costs bearing the brunt as the authorities cracked down on wealth-management products and drove money-market rates higher.
There are some signs of relief, with the PBOC injecting a net $41 billion into the financial system on Wednesday -- the most in a month. Reining in borrowing and ensuring stable growth aren’t contradictory, a spokesman for the Communist Party Congress said Tuesday.
— With assistance by Tracy Alloway