Chinese 10-year bond yields touch 4-month high, heads to break 3 pct mark

The Chinese 10-year bond yields hit near 4-month high Monday, following widespread sell-off in global debt market.

We also maintain our previous forecast that the country’s benchmark 10-year treasury yields will likely touch the 3 percent mark in the near term, following increased chances of a revival in economic growth, coupled with recovery in consumer prices, which is likely to pressurize the country’s sovereign bonds.

The yield on the benchmark 10-year bonds, which moves inversely to its price, rose 2-1/2 basis points to 2.854 percent, the long-term 30-year bond yield climbed nearly 2 basis points to 3.265 percent and the yield on the short-term 2-year bonds bounced nearly 1 basis point to 2.378 percent.

The Chinese sovereign bonds have been closely following developments in the U.S. debt market. The United States benchmark 10-year Treasury yield bounced 9-1/2 basis points to 2.203 percent for the first time in 2016.

In term of latest economic data, China’s industrial production expanded by 6.1 percent y/y in October at the same pace as September; estimates were for 6.2 percent y/y. Also, retail sales rose by 10.0 percent y/y in October after jumping 10.7 percent y/y in September; estimates were for 10.7 percent y/y. Additionally, fixed asset investment increased by 8.3 percent y/y in January-October after 8.2 percent y/y in January-September; estimates were for 8.2 percent y/y.

Also, speculation of a rise in government spending by the newly elected President of the United States, Donald Trump will spur the economic growth of the States, lending a helping hand to its inflation prospects as well, raising probabilities of a December interest rate hike by the Federal Reserve.

The world’s second-largest economy’s consumer inflation rose for the second straight month during the period of October. China’s consumer prices increased by 2.1 percent y/y in October after 1.9 percent y/y; in line with estimates, while producer price increased by 2.1 percent y/y in October after 0.1 percent y/y; estimates were for 0.9 percent y/y.

Meanwhile, People's Bank of China sets the USD/CNY reference rate at 6.8291, 0.26 percent weaker than 6.8115 last Friday and injects 170 billion Yuan liquidity in reverse repos, including 65 billion Yuan in 14-day repos.

The China's blue-chip CSI300 index rose 0.20 percent to 3,424.20 points and the Shanghai Composite Index rose 0.21 percent to 3,202.82 points.