China's benchmark 10-year sovereign yield dropped to an all-time intraday low, driven by haven demand and a recent policy rate shift that was regarded as a de facto easing. The yield on 10-year sovereign notes slipped about one basis point to 1.58%, the lowest intraday level on record for the on-the-run notes, according to data compiled by Bloomberg.
A selloff in equities has bolstered demand for Chinese bonds, with sentiment toward fixed income also improving as jitters surrounding the debt repayment of state-backed conglomerate Zhuhai Huafa Group Co. eased. The People's Bank of China has stepped up its rate reform to prioritize overnight operations from the start of November, announcing the overnight rate at 1.25%, lower than the previous 1.4% seven-day benchmark.
"Investors are seemingly rebuilding positions in China cash bonds since the start of this week, as the shocks of credit events have faded, reaffirming still-decent demand for China rates," said Jeffrey Zhang, strategist at Crédit Agricole CIB in Hong Kong. "Volatility in stock markets could be the near-term catalyst to drive asset reallocation to fixed-income assets with contained uncertainty into year-end." The yield on 30-year notes dropped about one basis point to 2.03%. Some analysts expect bond yields to continue to decline given lower funding costs and sluggish domestic demand.
"The room for more immediate easing is limited," said Becky Liu, head of Greater China strategy at Standard Chartered Bank Plc. "But interbank rates will also stay lower and more stable, boding well for rates to fall modestly further."
Source: Bloomberg Markets · Summarized by HeadlinesBriefing