The 10-year yield declined three basis points to 2% after the People’s Bank of China on Tuesday announced reductions to its policy rate, lenders’ reserve-requirement ratio and outstanding mortgage rates to support the economy.
China’s government bonds have been rallying this year as concern over the economy and the prolonged property crisis continues to pushes investors toward haven assets. The relentless rally has stoked concern among authorities that the bursting of a liquidity-fueled bubble could jeopardize financial stability.
Beijing’s pushback has gone from verbal warnings to direct intervention but that has had little effect on the bond frenzy.
“It will be interesting to see if the PBOC steps in again to try and protect the 2% level, but I am personally expecting it to move below 2% at some point,” said Lynn Song, chief economist for greater China at ING Bank NV. “If we see more easing later in the year, it would not surprise me to see it move down to 1.8% or so.”