(Bloomberg) — Chinese government bonds prolonged a recovery after the country’s central bank boosted short-term funding support.
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Yields on the benchmark 10-year note fell 3 basis points to 1.84%, marking a 3rd consecutive day of declines. Futures on the 30-year paper rose as much as 1%, essentially the most since late December.
The gains got here after the People’s Bank of China has added a combined 973.2 billion yuan ($134.6 billion) via short-term policy loans on a net basis within the last 4 days, ending two weeks of draining and marking the longest streak of injections since late January.
The availability of recent money signals growing official concerns about risks from the recent bond rout that resulted from each the PBOC’s efforts to defend the yuan and a rally in Chinese stocks. Given the dollar’s recent global retreat, Beijing can afford to refocus on lowering borrowing costs in order to attain its ambitious annual economic growth goal and help investors absorb a spike in debt issuance.
“PBOC’s continued injections will prevent the debt selloff from worsening and help recuperate confidence in bonds,” analysts led by Liu Yu at Huaxi Securities wrote in a note. “With the support signal, the bond market has the potential to re-enter a moderately bullish phase.”
China’s money market was under pressure earlier this yr, after the PBOC allowed a money crunch to push key short-term funding costs to surge to the very best since June. The central bank also has avoided lowering rates of interest or banks’ required reserve ratio since September.
Meantime, China’s annual supply of recent government bonds is about to extend to 11.86 trillion yuan this yr, after officials raised the overall budget deficit goal to around 4% of GDP, the very best level in greater than three a long time.
The PBOC “should turn into more comfortable with the yuan — and thus less must keep liquidity tighter — after the recent decline of depreciation pressures,” said Becky Liu, head of China macro strategy at Standard Chartered Bank in Hong Kong.
–With assistance from Qizi Sun.
(Updates with more comments and details)
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