Chinese government bond yields widest difference from US in over 10 years

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The gap in borrowing costs between the United States and China has widened to its widest level in more than a decade, demonstrating a sharp divergence in bond market expectations for the world’s two largest economies.

The yield on China’s benchmark 10-year government bond fell 0.05 percentage point to 1.77% on Friday, hitting a new record low after the Chinese government hinted at a possible interest rate cut. Meanwhile, the yield on the US 10-year Treasury note rose slightly to 4.33%. As prices rise, yields fall.

This widened the gap between the two countries to more than 2.5 percentage points, the largest since at least 2011, according to LSEG data. This move is due to concerns that the Chinese economy is falling into a deflationary spiral, as well as the possibility that US President-elect Donald Trump will implement aggressive fiscal policy to shore up the US economy, leading to a widening of the budget deficit. It reflects the view that

“This is a result of the decoupling between the United States and China,” said Zhu Wang, head of China foreign exchange and rates at BNP Paribas, adding that the divergence in economic performance between the two countries can be partially explained by deglobalization.

The yield gap also puts further pressure on the Chinese yuan, which has been weakening due to a slowing Chinese economy and the renewed threat of a trade war with the United States under the Trump administration.

A weaker yuan could heighten tensions with the next US president. Trump administration officials have previously labeled China a “currency manipulator.”

China’s currency has fallen further in recent days after Reuters reported, citing sources, that the Chinese government is considering further devaluation of its currency to protect exporters. The onshore yuan was at $7.28 to the dollar, and on November 5, the day of the U.S. presidential election, the yuan was at $7.10.

The drop in yields came after Chinese Communist Party officials pledged to work “vigorously” to boost domestic consumption and lower interest rates to revive the economy.

Yields on China’s long-term government bonds also fell on Friday, with the 30-year bond yield down 0.04 percentage points to 2.01%. The two-year bond yield fell by 0.05 percentage point to 1.18%.

“The big picture is that China is adopting a low-inflation (economic) model…China’s 10-year bond yield could fall to 1.5% by the end of next year,” BNP’s Wang said. He added that there is.

The rally in Chinese government bonds comes as investors seek refuge amid an extended stock market decline.

Xi Jinping’s Communist Party’s Politburo on Monday changed its monetary policy stance from “prudent” to “moderately accommodative” for the first time in 14 years, a new sign that Beijing is seeking to take action to stimulate growth. be.