Yields on short-term debt issued by Chinese banks have dropped to a record low after the central bank shifted to the overnight repo rate as its primary policy anchor, a move markets see as de facto easing.
Yields on one-year negotiable certificates of deposit (NCDs) issued by China's top-rated lenders fell to 1.39% on Wednesday, according to Bloomberg data going back to October 2015. The new overnight reverse repo rate of 1.25% sits 15 basis points below the former seven-day benchmark of 1.4%, effectively lowering funding costs across the interbank system.
The policy ripple effects have also reached sovereign debt. China's 10-year yield has fallen to 1.6%, near a historic low. Analysts at Guosheng Securities, Yang Yewei and Yi Yi, expect one-year NCD yields to decline further to 1.30%-1.35% and 10-year sovereign bond yields to fall to 1.5% by year-end and early next year, according to a research note.
"The shift in the policy rate benchmark has lowered the effective anchor of market interest rates," they wrote.
Source: Bloomberg Markets · Summarized by HeadlinesBriefing