Chinese sovereign bonds sag following U.S. Treasuries, 10-year yields inch away to break June high of 3 pct

The Chinese sovereign bonds slumped Friday as investors moved away from the safe-haven buying amid following weakness in the U.S. Treasuries.

Also, the Federal Reserve Chair Janet Yellen in her testimony to the Joint Economic Committee (JEC) of Congress said that there is a higher possibility for an interest rate hike in December.

Also, the Chinese 10-year bond yields approached to break the 3 percent mark for the first time since June this year.

The yield on the benchmark 10-year bonds, which moves inversely to its price, rose 2-1/2 basis points to 2.921 percent, the long-term 30-year bond yield climbed 6 basis points to 3.406 percent and the yield on the short-term 2-year bonds bounced 3 basis points to 2.414 percent.

The Chinese bonds have been closely following developments in the U.S. debt market. The United States benchmark 10-year Treasury yield jumped 5-1/2 basis points to 2.32 percent. The probability of a December rate hike by the Federal Reserve going from as low as 30 percent to as high as 96 percent.

Federal Reserve Chair Janet Yellen, in her congressional testimony, strengthened bets that the central bank was on the right path to hike interest rates in December. This was the first direct signal from the Fed after December last year.

Moreover, the People's Bank of China (PBoC) official press agency Xinhua News said that China is expected to keep prudent monetary policy and the possibility of rate, RRR cut is low. Said CPI growth may be around 2 percent this year.

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 6.8796, weaker than 6.8692 yesterday and injects 270 billion Yuan liquidity in reverse repos, including 25 billion Yuan in 28-days repos and 120 billion Yuan in 14-day repos.

The China's blue-chip CSI300 index fell 0.57 percent to 3,416.94 points and the Shanghai Composite Index dipped 0.51 percent to 3,192.16 points.