The Chinese sovereign bonds rallied Tuesday after data showed that the country’s both consumer and producer inflation continued to remain weak, creating pressure on the PBOC for a further innovative monetary policy easing.
The yield on the benchmark 10-year note, which moves inversely to its price, dipped nearly 1 basis point to 2.762 percent, the yield on super-long 30-year bond fell nearly 3 basis points to 3.327 percent and the yield on short-term 3-year note slid 1 basis point to 2.407 percent by 05:00 GMT.
China's CPI inflation eased to 1.8 percent y/y in July, the consensus was for 1.8 percent y/y, as compared to 1.9 percent y/y in June as food inflation moderated to 3.3 percent y/y in July from 4.6 percent y/y in June. This print lost the momentum for third straight month, putting it further below the government target of 3 percent for the year.
Similarly, China's PPI declined for a 53rd consecutive month by 1.7 percent y/y in July, against market consensus of -3.2 percent y/y, after -2.6 percent y/y reading seen in June.
On Monday, China’s exports fell again in July while a decline in imports accelerated in a possible sign of weakness in the world’s second-largest economy. Imports tumbled 12.5 percent y/y in July in USD terms after falling 8.4 percent y/y in June, against market expectation of -12.5 percent y/y.
Similarly, exports declined 4.4 percent y/y in USD terms after dipping 4.8 percent y/y in June, the consensus was for -3.5 percent y/y. China's trade balance widened to 52.31 billion US dollar in July from 48.11 billion US dollar in June, the consensus was for 47.3 billion US dollar.
Meanwhile, China sets the USD/CNY reference rate at 6.6594, 0.03 percent stronger than 6.6615 yesterday. The Shanghai Composite (SSEC) rose 0.29 percent to 3,012.89.
