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Pedestrians walk along a street in the Central Business District of Beijing on July 9, 2024.
Wang Zhao | AFP | Getty images
The recent rebound in the yields of China’s government bonds is not a sign of reflection, economists say, since persistent deflation pressure is expected to keep loans costs low.
A sale of sale intensified in China’s government bonds has sent yields increase in recent weeksAs the Popular Bank of China drained the liquidity of the money market to stabilize its currency and the sudden increase of Deepseek led the funds to rotate in shares.
The 10 -year reference yield has won more than 30 basic points Of its historical minimums in January To reach the psychological level of 2% this week, levels not seen since December.
“Market optimism is ahead of reality,” said Edmund Goh, Chinese’s fixed -income manager in Abrdn, warning that “there is no clear sign that the economy is still out of the forest.”
The feeling of the consumer is almost minimal record and the demand for household credit and companies remain anemic.
The new domestic loans were only 54.7 billion yuan ($ 7.5 billion) in the January-February period, according to Data published by PBOC. That marked the lowest level during the same period in the last two decades, according to Larry Hu, Chinese chief economist of Macquarie, citing the recovery of the fading real estate market.
The costs of loans in the economy in general, which generally move together with the yields of the government bonds, will probably be “lower for longer,” said Jason Pang, manager of the fixed income portfolio of Asia in JP Morgan Asset Management.
While he expects monetary policy to remain “accommodative”, the investment bank is overweight “the 10 -year government bonds of China as a” tariff coverage “, waiting for yields to operate between a range of 1.65% to 2.0%.
Cheaper loans
Chinese commercial banks have tried to shake customers with record interest loans, borrowed to Beijing’s request to reinforce spending. People have chosen to eliminate money, since income growth is still unstable and a prolonged recession of the real estate market eroded the wealth of households.
Home savings doubled more from 2018 duplication to approximately 151 billion yuan last year, even when banks repeatedly reduce deposit rates. In the first two months of this year Household deposits increased by 6.13 billion yuan.
National Regulatory Administration of Financials last week He urged banks to expand the issuance of loans for personal consumption and establish “reasonable” interest rates.
Shanghai, China: a Chinese client at a branch of the Bank of Ningbo on the eve of its IPO in Shanghai on July 18, 2007.
Mark Ralston | AFP | Getty images
Several regional banks throughout the country have distributed cheap consumption loans with rates such as low as 2.58% – A dramatic fall of Loan rates above 4.36% in May 2022, according to RONG360 Digital Technology Institute.
Loan rates will probably fall even more as the demand for credit remains modified, said Becky Liu, director of China’s macro strategy at Standard Chartered Bank, “deflationary pressure is still deepening.”
Liu expects the 10 -year government note to ceda only 1.4% for the end of this year, since the Central Bank progresses with more monetary flexibility to reinforce growth.
Deflationary streak
Beijing has made the impulse of national consumption a priority of higher policy this year, since China prepares for a renewed commercial war with the United States thoroughly the return of President Donald Trump to the White House.
The new rates that Trump imposed on Chinese products has already weighed On the growth of the country’s export.
China consumer price inflation in February fell into negative territory For the first time in more than a year, while the deflation of the producer’s price has persisted for more than two years.
In the first two months of the year, central inflation is expected to exclude volatile articles such as food and energy, it has expanded in just 0.3%, the estimates of Macquarie HU, which predict that this would mark the longest deflationary streak since 1993.
If the economy (from China) continues to decrease or the FED flashes, the expectation of a rates cut will resurface and the yields of the bonds could fall again.
Larry Hu
Chinese chief of China in Macquarie
Without a doubt, “it is unlikely that the low interest rates for themselves are enough to cause a rebirth in consumer loans,” said Frederic Neumann, chief economist of Asia in HSBC Bank, emphasizing that achieving such an objective requires “an increase in trust” that can only occur gradually.
The majority of the wealth of Chinese households is in property, however, the sector affected by the crisis is still struggling to find a floor. New housing prices fell 4.8% in February For a year, while investment in real estate development 9.8% collapsed in the year In the first two months.
Yuan in focus
A demonstration in the United States government debt this year, promoted by concerns about the impact tariffs they will have in the deceleration economy, has sent the lowest yields. That in turn has reduced the gap between the yields of the American bonds and those of the corresponding Chinese debt.
A key source of weakness in Yuan was the capital exit for the United States, where bond yields were higher. The recent market movements that have seen the yields of the United States bonds decrease as well as the yields of Chinese bonds have increased, therefore, they have relieved the downward pressure on Yuan.
In particular, the performance gap, while reduced to a minimum of three months, was still substantial at 230 basic points from Friday, according to LSEG data.
“The risk of a solid RMB is in the short term,” said Ju Wang, head of the Gran China Fx & Tasas strategy in BNP Paribas, citing the Federal Reserve Plan of the United States to Atrolating the links back It is maintained in its balance and the increase in the performance in the long -term bonds of China.
“This could partially relieve friction in trade (as), the market will realize that China has not only refrained from devaluing the RMB despite 20% of the rate, but also allowed a modest appreciation of the yuán,” Wang said.
Yuan on the high Mar Chinese recovered some land against the US dollar in recent weeks, after reaching a minimum of 16 months in January. It was last seen that it is quoted at 7,2478 against the backback. Even so, more than 2% has weakened since the electoral victory of the president of the United States, Donald Trump, in November.
The PBOC has maintained its reference point Inverse repo rate of 7 days without changes since Septemberstanding at 1.5%, challenging the expectations that the Central Bank would reduce rates to stimulate the economy. The authorities have repeatedly hinted at their plan to facilitate the most rate this year, but they have not yet followed.
He Federal Reserve in a decision closely Wednesday He kept the line at reference interest rates, while indicating that the reductions are probably later in the year.
“If the economy (from China) continues to decrease, or the fed flash, the expectation of a rates cut will resurface and the yields of the bonds could fall again,” said Macquarie Hu.
