Chinese Government Bonds Plunge In Wake Of PBOC Intervention

Based on a Reuters report, 10-year treasury futures slipped by 0.6% to record the worst performance in about 17 months, while bond yields increased by approximately four basis points. The PBOC has repeatedly warned investors about their overinvestment in government bonds as they steer clear of China’s volatile stock options and drowning property market.

The central bank reportedly indicated that this investor activity potentially causes destabilising ‘bubble risks’. Plunging treasury yields also make it difficult for the PBOC to bolster the yuan.

Some investors, however, believe that the bullish phase of the government bonds has not yet passed, as China’s economy remains unstable and these investments are more attractive than high-risk stocks. Reuters quoted an unnamed Beijing-based bond fund manager who said:

We remain actively bullish. We don’t see a rosy economic picture … and we’re under peer pressure to generate returns.

Reuters indicated that even those “who have turned bearish appear half-hearted”. Wang Hongfei, a treasury futures investor, said that he has chosen to be “opportunistic” for now and handles trades in rapid “skirmishes” as the market continues its battle with regulators.

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However, with the PBOC’s attempts to rope the bulls, authorities are addressing speculators and unexpected movements in both the stock and currency markets. According to Reuters, Ryan Yonk of the American Institute for Economic Research said:

Chinese officials will face increasing difficulty in maintaining such tightly controlled financial markets, and additional interventions are likely, and may signal the very instability Chinese officials are seeking to avoid.