Bond investors burned by the worst week for Chinese government debt in more than five years should look to the central bank for comfort, according to analysts.
Despite data showing a surprise jump in a manufacturing gauge, the People's Bank of China is likely to keep monetary policy loose, thereby supporting bonds, the argument goes. One brokerage said a reduction in banks' required reserve ratio is possible this month, while a bank pointed to inflows from foreign investors as shoring up sovereign debt.
The yield on 10-year bonds rose 19 basis points last week, the biggest increase since November 2013, in a shock to investors. Buying government debt has been a surefire way to make money in the past 14 months, with the yield falling from around 4% to 3.07% at the end of March — the lowest since December 2016.
The yield on the most actively traded 10-year bonds was little changed at 3.25% as of 4:34 p.m. China Standard Time. Futures on notes of the same tenure rose 0.14%, the first advance in six sessions.
Among the analysts:
• Citic Securities Co. in a note said the debt might be supported by a possible cut in the reserve-requirement ratio, which might happen this month as 367 billion yuan ($55 billion) of medium-term loans offered by the central bank are set to mature.
• Haitong Securities Co. analysts led by Jiang Chao in a note said bonds will fluctuate. They will be pressured by a better economic outlook but also supported by a loose monetary policy.
• Guotai Junan Securities Co. analysts led by Qin Han in a note said the room for yields to move higher will be limited. If liquidity remains loose, there is an opportunity to add long-dated bonds.
• Westpac Banking Corp.'s head of Asia macro strategy Frances Cheung said by phone that the prospect of foreign inflows following the inclusion of onshore bonds into a key index will provide support, while the absence of a trade deal and concrete signs of economic stabilization will continue to curb risk-on sentiment.