#China10YearYieldFallsBelow1.7%

Chinas 10-Year Yield Slips Back Below 1.7%

On August 12 Chinas 10-year government bond yield went down below 1.7% and it ended at 1.694%. At the time the 30-year yield went down to 2.160%. This happened because people think the government will make it easier to borrow money and because big investors keep buying bonds. Some people think that the 1.7% level already takes into account the fact that interest rates will go down so they wonder how lower yields can go.

What Does This Mean

When the 10-year yield goes back below 1.7% it shows that people are still selling government bonds. When both the 10-year and 30-year yields go down it means that people are changing their minds about what the government will do and how the economy will grow. It is not a small change in one type of bond.

Why Is This Happening

There are two reasons for this. First people think it will be easier to borrow money so they are buying bonds that will be good for a time. Second big investors keep buying bonds, which helps push yields down. These two things together were enough to make the 10-year yield go down below 1.7%.

The Debate About Prices

Some people think that 1.7% is already low enough because it takes into account the fact that interest rates will go down. If that is true then yields will only go down more if the government gives signals that it will make it easier to borrow money or if the economy grows more slowly. If the market is wrong about how much the government will help then yields could keep going down. The difference between these two views will determine what happens next.

What Does It Mean

I think the yield going back down below 1.7% is a sign that people expect the government to make it easier to borrow money and that big investors are buying bonds. However I do not know how lower yields will go. Bond markets can change quickly when the government is making it easier to borrow money. They can also stay the same once the expected easing is fully taken into account. The 30-year yield at 2.160% gives us another point of reference for this debate.

Final Thoughts

Chinas 10-year yield went down to 1.694% on August 12. It went back down, below 1.7%. The 30-year yield went down to 2.160%. People expecting the government to make it easier to borrow money and big investors buying bonds were the reasons. Some people think that the 1.7% area already takes into account the fact that interest rates will go down. Whether yields will go down more depends on what the government does and how much more easing the market thinks is needed.

How further can Chinas yields decline from here? Share your view.

This is what I think about the yield moves and the surrounding debate. It is not a recommendation.

‍#ChinaYields #BondMarket