The Chinese bonds slumped on Monday as investors cooled on safe-haven assets after reading on-going less aggressive easing stance by the People’s Bank of China (PBOC), which drained liquidity from the fixed income securities. The yield on the benchmark 10-year bonds which moves inversely to its price moved higher 0.37 pct to 2.973 pct and the yield on the 2-year bonds ticked up 1.38 pct to 0.032 pct by 0530 GMT.
The People’s Bank of China is expected to begin easing policy less aggressively after property prices grew sharply and loan growth accelerated strongly in Q1, noted ANZ. Also, this is consistent with the assessment that recent economic data improved a bit - March Industrial production figures jumped to 6.8 pct y/y, higher than the market consensus of 5.9 pct y/y, as compared to 5.4 pct in the February. The March retail sales also climbed 10.5 pct y/y, more than the market expectation of 10.4 pct y/y, from 10.2 pct in February, manifested that Chinese economy is removing modestly.
"Monetary policy has already done its job after last year’s intensive easing and we expects rates on hold all year versus earlier predicting a second-quarter cut," said Harrison Hu, chief Greater China economist at Royal Bank of Scotland Plc in Singapore to Bloomberg.
"The central bank needs to save the bullets for more difficult times ahead. Fiscal policy should take over and play a larger role this year in buttressing the real economy," he added.
Meanwhile, the People’s Bank of China deputy governor Chen said that factors affecting financial stability have significantly increased; and downward pressure remains on the economy. Said the authorities should strengthen financial regulations, improve regulatory strength and effectiveness, and eliminate regulatory gaps. He further added that factors that could trigger regional systemic risk should be included in macro-prudential policy frameworks in a timely manner for appropriate response to safeguard financial stability.
The investors will now look forward to this week’s FOMC meeting on Wednesday, 27th April.
