China’s bond market underwent a notable correction in October, with yields on 10-year government bonds rising as high as 3.93 percent from 3.62 percent in late September. Nonetheless, it's too early to get too bearish.
Unlike previous bond selloffs, the latest one doesn’t appear to be driven by concerns about domestic interbank liquidity as Monday's big move lower happened even though the People's Bank of China injected a net 40 billion yuan ($6.03 billion) into the financial system via reverse repurchase agreements. That followed net injections of 90 billion yuan Friday and 20 billion yuan Thursday. Instead, the weakness was likely driven by the drop in U.S. Treasuries and a halt in the PBOC’s cash injection during the twice-a-decade National Congress of the Communist Party.