Chinese 10-year sovereign bond yields heading steadily towards 3.50 pct mark

The Chinese 10-year sovereign bond yields hit highest since September last year on Tuesday after Federal Reserve Chair Janet Yellen in her speech at the University of Baltimore maintained hawkish tone. Also, we foresee that the 10-year bond yields to increase further and break 3.50 percent mark in early January, 2017.

The yield on the benchmark 10-year bonds, which moves inversely to its price, rose 3 basis points to 3.37 percent and the yield on the 3-year bonds jumped 5 basis points to 3.09 percent.

Federal Reserve Chair Janet Yellen commented that the United States is now seeing its strongest labour market in nearly a decade as job creation has continued at a relatively steady pace. Also added that she has seen signs of wage growth improving and that weekly earnings for younger workers are making strong gains.

Moreover, China Securities Journal said the tight liquidity in the interbank market is expected to continue until early February and liquidity is forecast to get even tighter in the next one to two weeks - citing end-of-year regulatory requirements.

Further added that a structural imbalance in liquidity is the biggest problem at the moment and the commercial banks lending to institutions with higher credit ratings which is making it more difficult and more costly for non-bank financial institutions such as brokerages to get needed funding, reported MNI. Also, PBOC's Economist Zhou said that he sees an economic turnaround in the last quarter of 2016.

The State Information Centre researchers in its latest report projected that the China's 2016 GDP to rise to about 6.7 percent; consumer inflation likely to climb about 1.8 percent next year, while the producer prices are expected to increase by 1.0 percent in 2017.

In addition, retail sales in China surged during the month of November, beating what markets had initially anticipated. Retail sales, a gauge of private and government spending, rose 10.8 percent year-on-year, up from October’s 10 percent pace, data released by the National Bureau of Statistics showed Tuesday.

Additionally, industrial production in China jumped during the third quarter of this year, adding certainty over the world’s second-largest economy’s steady expansion after having suffered a volatile condition for two long years.

China’s Industrial production, a broad measure of factory output, rose at an annualised 6.2 percent, data released by the National Bureau of Statistics showed Tuesday. That exceeded expectations for an increase of 6.1 percent, which would have been unchanged from the October reading.

Consumer prices in China rose during the month of November, remaining slightly above what markets had initially anticipated. However, the figure remained below the upper limit of the government’s target range.

China’s consumer price index (CPI) advanced 2.3 percent from a year ago, after climbing 2.1 percent in October, data released by the National Bureau of Statistics showed Friday. A median estimate of economists called for a 2.2 percent year-over-year gain. Compared to October, consumer prices rose 0.1 percent, matching forecasts. That followed a 0.1 percent decline the previous month, the data showed.

Furthermore, the producer price index (PPI) soared 3.3 percent in the 12 months through November, well above forecasts calling for 2.2 percent. Producer inflation has now risen in each of the last three months after nearly five years of decline.

Meanwhile, People's Bank of China sets the USD/CNY reference rate at 6.9468, stronger than Monday’s 6.9312. The China's blue-chip CSI300 index closed 0.60 percent lower to 3,309.06 points and the Shanghai Composite Index dipped 0.49 percent to 3,102.88 points.