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China’s benchmark government bond yield fell to a nearly 22-year low with experts attributing the development to a shift in investor behaviour towards fixed-income products amid a fragile economic recovery. 

The onshore 10-year government yield slipped to 2.22%, the lowest since 2002. 

Yields on the 20- and 50- year bonds have been trading at their historic lows for months.

Government bond yields are critical indicators of economic confidence and investor sentiment.

Despite recent upgrades to growth forecasts, the bond market’s performance suggests ongoing challenges like an extended housing slump and weak investor sentiment bringing the stock market under pressure. 

The said challenges have led calls for policymakers to deploy more monetary stimulus to boost growth, Bloomberg said. 

“If China had an open capital market, this would be one of the only global bond markets worth owning. Heavy deflationary pressures,” Spencer Hakimian, founder of US-based Tolou Capital Management, said on ‘X’.

The bonds have been rallying on the back of China’s lacklustre economic growth, coupled with a dovish monetary policy and the impact of ample liquidity in the banking system with loan demand so weak, according to Bloomberg. 

A increase in borrowing to ramp up fiscal stimulus has failed to deter investors.

“With risk sentiment staying subdued while expectation is still for some form of monetary policy support, there are safe haven flows into CGBs as there is probably a lack of better investment alternatives as seen by investors at the momentum,” Frances Cheung, a strategist at Oversea-Chinese Banking Corp in Singapore, said, as quoted by Bloomberg.

“We however caution against chasing long end yields lower as at these levels, they appear overly low compared to potential GDP growth,” he said. 

China’s central bank has been ramping up a verbal pushback against the bond rally and has hinted it may sell some of its own holdings to cool the advance, Bloomberg has said.

“We think at one point the PBOC will be concerned and may do something, including tighten front-end liquidity or even CGB selling to slow the rates drop,” said Stephen Chiu, chief Asian foreign-exchange strategist at Bloomberg Intelligence.

“Though in the long run, rates downtrend should be the norm,” he said. 

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