Chinese 10-year bond yields at 2-week low as consumer inflation growth slows in December

The Chinese 10-year bond yields dropped to lowest in two weeks Tuesday after latest data showed that the country’s April consumer-inflation rate came in below market expectations. Also, rising speculations that the economic growth will slow to 6 percent boosted demand for safe-haven buying.

The yield on the benchmark 10-year bonds which moves inversely to its price moved lower by more than 2bps to 3.18 pct and the yield on the 2-year bonds ticked down over 1bp to 2.82 percent by 07:00 GMT.

China’s headline CPI inflation came in at 2.1 percent y/y in December, missing market expectations of 2.3 percent and below 2.3 percent recorded in November. On a monthly basis, CPI inflation rose 0.2 percent, up from 0.1 percent in the month earlier.

However, China's producer prices rose for the fourth consecutive month in December from a year earlier. The producer price index gained 5.5 percent compared with a 3.3 percent year-over-year increase in November. The index increased 1.6 percent m/m in December, compared to 1.5 percent in November.

"I don't think there's an inflation issue in China, it's an asset bubble," Economic Times reported, citing Zhou Hao, Senior Emerging Market Economist, Commerzbank, Singapore.

We foresee that China is poised to abandon its 6.5 percent growth target sometime in the next two years as leaders push to contain asset bubbles and financial leverage. Lastly, China’s President Xi Jinping also confirmed in one of his meetings last month that the country may forego its 6.5 percent economic growth objective due to concerns about rising debt and an uncertain outlook for Asia’s largest economy.

Meanwhile, Shanghai Composite (SSEC) fell 0.30 percent to 3,161.67 and Shenzhen Composite (SZSE) Index slipped 0.25 percent to 10,306.34 by 07:15 GMT, while at 7:00GMT, the FxWirePro's Hourly Yuan Strength Index remained neutral at 16.14 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex