The biggest bull run in China’s bond market in a decade has faltered, as the central bank’s delay in easing monetary policy weighed on investors’ confidence about liquidity in the economy, while a re-rating of the stock market sapped demand for debt.
The yield on the benchmark 10-year government bond has been driven up to a three-month high of 1.83 per cent amid a debt sell-off, after rising by 15.4 basis points this year. One-year debt yields 1.541 per cent, a level not seen since July 2024, as investors grappled with the economy’s 5 per cent growth target this year.
The tumult in the fixed-income market is not over, according to Huatai Securities and Great Wall Securities, as the yield on 10-year bonds may soar to 1.9 per cent, or even touch 2 per cent.
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“Sentiment is cautious, swaying with the pace of implementation of the monetary policy, and [with the question of] whether economic fundamentals have stabilised”, said Minsheng Securities’ analyst Tan Yiming. “Expectations of a sustainable, long-term bull market have been shattered.”
A pedestrian bridge with a market display in Shanghai in March 2025. Photo: EPA-EFE alt=A pedestrian bridge with a market display in Shanghai in March 2025. Photo: EPA-EFE>
The reversal of fortunes in China’s 170 trillion yuan (US$23.5 trillion) bond market has stunned investors, raising the question whether the bull run has been exhausted in the world’s second-largest capital market.
The People’s Bank of China would cut interest rates and banks’ reserve requirement ratio (RRR) “in a discretionary manner”, Governor Pan Gongsheng said during the legislature’s annual meeting last week, deviating from the boilerplate of “at proper time”, used in the government’s work report. The changes in phrase and tone were widely interpreted as a sign that the central bank was putting on hold any plans to cut borrowing costs.
People’s Bank of China (PBOC) Governor Pan Gongsheng during a press conference in Beijing on September 24, 2024. Photo: Reuters alt=People’s Bank of China (PBOC) Governor Pan Gongsheng during a press conference in Beijing on September 24, 2024. Photo: Reuters>
Any cut will have to wait until after April, according to Nomura Holdings, which expects a full percentage point cut in the RRR this year, and a 0.3-point cut in the base interest rate between the second and fourth quarters.
