Investors are continuing to pour money into bonds despite recurring People’s Bank of China (PBoC) warnings about the risks of such investments. According to the latest data, there was a 40% year-on-year rise in Chinese bond mutual funds in May 2024.
PBoC Warnings Fall On Deaf Ears As Bond Investments Continue To Rise
This investment action triggered another spike in the country’s treasury futures while causing the long-term yields to hover on the edge of historic lows. Media reports indicated that people are preferring to invest in fixed-income options because banks keep decreasing the interest earned on savings products.
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Analysts believe that China’s bullish bond market reflects distrust in the country’s economy as it continues to battle the property fiasco, debt issues at local government levels, and ever-looming geopolitical challenges. Reuters cited Gang Su, chief investment officer at China Pacific Insurance Group, who said:
We’re in the midst of a long cycle that we’ve never experienced before … and the market lacks confidence.
The perpetual decrease in yields sparked these warnings by the PBoC as the market imbalance may rock China’s financial stability. According to a Reuters report, China’s 30-year treasury futures were up approximately 0.3% on Thursday 27 June 2024 and attained a new record high. The 10-year bond futures also recorded unprecedented highs.
However, 10-year treasury yields dropped below the 2.3% yardstick and are fast heading towards the April 2024 low of 2.205%. The 30-year treasury yield is currently floating below the 2.5% level. Many fear intervention by the PBoC should these trends persist.
