China caught in low-yield vortex

The slide in China's 10-year bond yield to 3 per cent for the first time since 2016 will only heighten expectation of when, not if, Beijing pulls the trigger on stimulus to support growth.

Combined with the ninth consecutive fix of the yuan at a weaker rate against the US dollar, bond and currency traders are sending a signal they're worried about growth in the world's second largest economy and Australia's largest trading partner.

China's bonds have proved somewhat resilient to the tracker-beam pull that has steered yields in developed markets like the US and Australia ever closer to zero. While the Chinese 10-year has dropped from a recent high of 3.45 per cent in April, the glideslope has been far less precipitous than the slide in US 10-year yields from 2.6 per cent from 1.6 per cent over the same period.

While the focus has been on sagging yields in Western markets, Asian bond markets are now joining the low rates chorus amid gathering dark clouds over the global economy. Singapore's 10-year yield plumbed to around 1.68 per cent – its lowest since 2016 – on Monday after the Asian financial hub slashed its growth outlook for this year to between 0 per cent and 1 per cent, down from a previous range of 1.5 per cent to 2.5 per cent.

With more than $US15 trillion of negative yielding debt around the world, and geopolitical tremors aplenty, it's not surprising that jittery global investors have turned their attention to the relatively juicier yields on offer in Asia. Foreign holdings of yuan-denominated bonds exceeded 2 trillion yuan for the first time in July.


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