HALISTER1: INSIDE CHINA: 10-Yr Govt Bond Yield Drops as Data Muddy Outlook

INSIDE CHINA: 10-Yr Govt Bond Yield Drops as Data Muddy Outlook

(Bloomberg) -- 10-yr yield drops to lowest since 2006 as weaker-than-expected economic data weigh on growth outlook and stoke speculation of further stimulus.
  • Yield on bond due Aug. 2026 down 3 bps to 2.66%, lowest for 10-yr benchmark since Bloomberg started compiling ChinaBond data in 2006
  • July new yuan loans 463.6b yuan vs est. 850b yuan; aggregate financing 487.9b yuan vs 1t yuan est.; M2 +10.2% y/y vs est. +11.0%
    • Pressure may be growing on PBOC to ease after loan growth, money supply and factory output data point to slowing economy, says Le Xia, chief Asia economist at BBVA; macro environment favors Chinese sovereign bonds
  • July industrial output +6.0% y/y vs est. +6.2%; retail sales +10.2% vs est. +10.5%
  • Below est. industrial output and loans data signal weak economic outlook; heavy govt bond buying flows seen, says Chunan Wu, bonds trader at China Zheshang Bank says
  • FX reforms may slow in 2H as data indicate pressure on growth: Commerzbank
  • Economic data set to weaken further in 2H on industrial capacity cuts, favoring sovereign bond market, says David Qu, markets economist at ANZ Bank China
  • 1-yr IRS down 2 bps to 2.4225%; 5-yr contracts down 3 bps to 2.6600%
  • Onshore yuan down 0.10% at 6.6441 per dollar, snapping 3-day rally; offshore yuan falls 0.15% to 6.6528
  • PBOC weakens reference rate 0.43% after strengthening it 0.41% yesterday
  • USD/CNY likely to break above 6.70 before yuan officially joins SDR on Oct. 1, followed by “a period of stability,” ANZ senior FX strategist Irene Cheung says
  • China net capital outflows accelerated to $39b in July, most in 6 months: IIF data
Alert: HALISTER1
Source: BFW (Bloomberg First Word)

People
David Qu (Australia & New Zealand Bank China Co Ltd)
Irene Cheung (Australia & New Zealand Banking Group Ltd)
Le Xia (Banco Bilbao Vizcaya Argentaria SA)

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