PBOC Easing Bets Clash With Probe and Fiscal Push
PBOC signals more easing, keeping yields low The PBOC said it will keep policy accommodative and roll out extra measures as needed, after second-quarter growth of 4.3% missed the government's target. That supports bond prices and keeps the 10-year yield low, though the bank did not promise rate or reserve-ratio cuts.
This is the main force pushing CN-10Y.GB yields down and prices up.
Weak July data and global contrast fuel long-bond buying July industrial output, retail sales and investment all missed forecasts, so investors bet on more easing and piled into long-dated bonds. Chinese yields fell even as US and other global yields hit multi-year highs, with the 10-year yield dropping below 1.70% for the first time in about a year.
It shows the economic weakness and investor demand that are driving the rally.
PBOC probe of mutual funds' long-bond bets The PBOC surveyed mutual funds about their 10-year and 30-year bond investments and duration mismatch risks. That signals the central bank may act to cool the rally, which could push yields up and bond prices down, making it a real counterweight to the easing story.
It is the clearest new risk that could reverse the yield decline.
New fiscal measures may add bond supply and credit Beijing is preparing fresh fiscal steps to boost credit, including more subsidised loans and faster local government bond issuance. More government borrowing and stronger credit demand can push yields up, working against the PBOC's low-rate stance.
It is a new supply-side force that could lift yields and offset easing.