Chinese sovereign bonds plunge as consumer sentiment climbs to 6-month high in Oct

The Chinese sovereign bonds plunged Wednesday after recent data showed that the world’s second-largest economy’s consumer sentiment climbed to a six-month high in October.

The yield on the benchmark 10-year bonds, which moves inversely to its price, rose 2 basis points to 2.737 percent, the 20-year bond yield climbed 1 basis point to 3.040 percent and the yield on the short-term 2-year bonds gained more than 1/2 basis point to 2.314 percent.

Consumer sentiment in China surged to a 6-month high during the period of October, led by strong gains in the willingness to spend more and in the components leading to the outlook of current household finances.

The Westpac MNI China Consumer Sentiment Indicator rose to 117.1 in October from 115.2 in September. The gains were led by increases in the 'Durable Buying Conditions' and 'Current Household Finances' components, which offset small declines in 'Expected Household Finances', 'Business Conditions in One Year' and 'Business Conditions in Five Years' sub-sets, data released by Westpac showed Wednesday. The Westpac MNI Indicator is based on responses from a minimum of 1,000 individuals aged between 18 and 64 across 30 cities in China.

Moreover, China’s bonds strengthened last week, which dragged 10-year yields to a decade low on worries over the country’s property market restrictions and reduced leverage in the financial system, which is poised to weigh on its economic growth.

PBOC's chief economist said that China will grow around 6.7 percent in 2016 and monetary policy is now appropriate. Said will look at changes in the macro economy and financial sector in the future and Yuan remains stable vs currency basket on Oct, despite falling against the dollar, this underlines commitment to new currency regime. Said impact on yuan to be limited if Fed raises rates in December and monetary policy will consider the possible impact on the property market.

On last Wednesday, China’s Q3 GDP growth stayed at 6.7 percent y/y, trended in line with the consensus, but in q/q terms, GDP growth nudged down to 1.8 percent q/q seasonal adjusted in the third quarter of 2016, from 1.9 percent q/q in previous quarter with growth in the secondary sector stayed at 6.1 percent y/y, while growth in the tertiary sector edged up to 7.6 percent y/y, from 7.5 percent y/y in the second quarter of 2016.

Meanwhile, People's Bank of China sets the USD/CNY reference rate at 6.7705, 0.06 percent stronger than 6.7744 yesterday and injects 210 billion yuan liquidity in reverse repos, including 75 billion yuan in 14-day repos and 30 billion yuan in 28-day repos.

The China's blue-chip CSI300 index fell 0.48 percent to 3,351.27 points at the end of the morning session, while the Shanghai Composite Index eased 0.63 percent to 3,112.46 points.