Breaking News
0

China bond yields, stocks rise as Beijing signals policy shift

Stock MarketsJul 24, 2018 05:25AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: Illustration photo of U.S. Dollar and China Yuan notes

By Andrew Galbraith and Winni Zhou

SHANGHAI (Reuters) - Chinese government bond yields and stocks rose on Tuesday after Beijing vowed to pursue a more 'vigorous' fiscal policy, as authorities stepped up efforts to support growth amid rising economic headwinds.

Expectations of further loosening in monetary conditions drove the offshore yuan down to a 13-month low, and underscored a broad change in China's policy direction as fears grow that an increasingly heated Sino-U.S. trade war could deal a harsh blow to the economy.

"The government is sending a clear signal that it is preparing to defend growth, ... Premier Li may be concerned about the negative impact of deleveraging on growth," ANZ economists Raymond Yeung and Betty Wang said in a note.

The yield on 10-year Chinese government bonds (CN10YT=RR) ended 2.9 basis points higher at 3.562 percent.

The rise follows a steady decline in the yield on 10-year treasury bonds, fueled by robust demand. The yield has fallen more than 50 basis points since late January, according to Thomson Reuters data.

As the U.S. Federal Reserve looks set to raise rates twice more this year, investors have pulled out of the yuan and other global currencies. The spread between 10-year Chinese and U.S. Treasuries has narrowed sharply, touching 19-month lows on Thursday.

Borrowing costs globally jumped on Tuesday after speculation that the Bank of Japan is close to announcing measures to dial back monetary stimulus.

On Monday, the State Council, China's cabinet, said the country would adopt a more 'vigorous' fiscal policy, while in an unexpected move, China's central bank lent 502 billion yuan ($74.36 billion) to financial institutions via its one-year medium-term lending facility (MLF), stepping up efforts to support lending as growth slowed.

The State Council's statement also indicated plans to accelerate the issuance of 1.4 trillion yuan in special bonds by local governments to underwrite investment in infrastructure, meaning the supply boost is likely to weigh on bond prices.

The shift in focus toward easing also comes after the central bank in July released 700 billion yuan in liquidity by cutting some banks' reserve requirements, prompted by concerns over tighter cash conditions and a potential economic drag from the U.S. trade dispute. It was the third such cut this year.

Economists have not ruled out further reserve requirement reductions this year.

While China has for now ruled out broad monetary loosening amid a multi-year effort to combat excessive financial risks, the country's economic data showed signs of weakness even before the latest ratcheting up of trade war tensions.

The world's second-largest economy grew more slowly in the second quarter and June factory output growth weakened to a two-year low, pointing to weaker exports and investment.

On Tuesday, a trader at an Asian bank in Shanghai said bond market sentiment was weak, and that market players remained divided over the outlook for rates.

As investors sold bonds, the country's stock markets moved higher on the prospect of policy easing. The Shanghai Composite index (SSEC) and the blue-chip CSI300 index (CSI300) both closed up 1.6 percent.

Shanghai's benchmark index and the CSI300 remain the world's worst-performing major stock indexes this year, but some investors say that fears of a rout in Chinese markets are overdone.

On top of the policy easing, analysts also cited new rules governing financial institutions' wealth management and asset management businesses for the jump in shares, noting they were less stringent than expected and would help to reduce systemic risks.

The long-awaited wealth management rules, released on Friday, aim to push banks to standardize their wealth management businesses and to invest wealth-management product funds into the capital markets in a compliant way.

YUAN WEAKNESS

In the currency market, expectations of further policy easing piled pressure on a fragile yuan, which suffered its worst month on record in June. The spot market opened at 6.8145 per dollar and eased to a low of 6.8295. It ended at 6.8100 by the domestic close, its weakest since June 27, 2017.

If the onshore yuan finishes the late night session at the same level, it would have lost 0.36 percent against the dollar for the day. The offshore yuan fell nearly 0.6 percent to a low of 6.8448 per dollar, its weakest since June 2017. It was trading at 6.8350 as of 0830 GMT.

The People's Bank of China (PBOC) had set the midpoint rate at 6.7891 per dollar ahead of the market open, its weakest since July 11, 2017. The fixing was 298 pips or 0.44 percent weaker than Monday's midpoint of 6.7593. The fixing matched market forecasts and dragged the spot rate lower.

On Monday, China said it has no intention of devaluing the yuan to help exports, after Washington said it was monitoring the currency's weakness amid the escalating bilateral trade brawl.

"The market now believes that chances for the yuan to rebound are getting low, unless there would be a strong official guidance from the authorities. Tolerance is higher. Investors thought that the 6.7 per dollar was the floor, then 6.8, now both are gone," said a trader at a foreign bank in Shanghai.

She said current trade suggested the authorities remained comfortable with the losses in the currency.

China bond yields, stocks rise as Beijing signals policy shift
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email