Chinese sovereign bonds strengthen this week on growth concerns; 10-year yields near decade low

The Chinese sovereign bonds strengthened this week as investors poured into safe-haven assets 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.

The yield on the benchmark 10-year bonds, which moves inversely to its price, fell 1 basis point to 2.691 percent, the 20-year bond yield dipped more than 2 basis points to 3.020 percent and the yield on the 7-year bonds slid nearly 3 basis points to 2.634 percent by 05:30 GMT.

According to Bloomberg, policy makers have extended the tenors of money-market lending tools, spurring speculation that they want to curb excessive use of leverage in debt investments. Financial regulators plan to tighten control on funds flowing into the property market, according to people familiar with the matter. While data this week showed economic growth meeting expectations, industrial output for September missed estimates. Sentiment on China has also been affected by the yuan’s drop to a six-year low, which has raised concern of capital outflows.

On 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 6.7558, 0.37 percent weaker than 6.7311 yesterday and injects 160 billion yuan liquidity in reverse repos, including 40 billion yuan in 14-day repos and 50 billion yuan in 28-day repos. The Shanghai Composite (SSEC) fell 0.27 percent to 3,075.96 by 05:30 GMT.