China 10Y Bond Yield Breaks Above 4% "Mental Line Of Defense"

Following last night's dismal economic data, China's 10Y bond yield pushed above 4.00% for the first time since October 2014...

As China's intentional credit slowdown strikes.,,


Additionally, China's yield curve has been inverted for a record 22 days and analysts are warning it is likely to get worse - at least until Chinese authorities are forced to step back in.


Bloomberg provides a breakdown of analysts' comments:

David Qu, market economist at Australia & New Zealand Banking Group Ltd. in Shanghai

  • “The breaking of 4 percent will have significant negative impact on sentiment. There’s a chance that we will see an extensive and quick slump in bonds in the near term.”
  • The selloff will spread to corporate bonds if sentiment worsens.
  • Worse-than-expected monetary and real economic data didn’t help bonds, which shows the market is losing confidence.
  • Investors should expect tougher financial regulations and tighter monetary policy next year, so bond yields will keep climbing.

Li Qilin, chief macroeconomic researcher at Lianxun Securities Co.

  • The breach of 4 percent may trigger a new round of stop-loss trades and drive the 10-year yield up, though it’s hard to predict how high.
  • The peak depends on whether authorities announce some supportive policies to calm the market and whether banks start buying bonds.
  • Banks don’t currently have money to allocate to sovereign bonds because they are under pressure to buy local government debt and deposit growth has been slow due to the popularity of investment alternatives such as Yue Bao.

Chris Leung, senior economist at DBS Bank Hong Kong Ltd.

  • “If deleveraging continues as Xi stated in the party congress, then bond yields will climb further.”
  • “With financial firms’ liabilities shrinking, and outstanding WMPs (wealth-management products) falling, the allocation or the demand to allocate to government bonds will shrink, weighing on prices.”

Liu Dongliang, senior analyst at China Merchants Bank Co. in Shenzhen.

  • China bonds will remain weak but there may not be an acceleration of declines after the break of 4 percent, as a “mental line of defense” was broken when the yield hit 3.9 percent.
  • Investors were expecting it to rise to 4 percent.
  • “The market is still worried about tougher financial regulation and tighter year-end liquidity.”

Zhang Guoyu, analyst at Tebon Securities Co. in Shanghai

  • The 10-year yield should be capped at 4.1%.
  • Authorities aren’t likely to let the rate climb fast as that would increase corporate funding costs and put pressure on the real economy, which is against the aim for stable growth.
  • If there’s another round of panic selling, the central bank will likely add liquidity to the market to stabilize it and prevent a rapid pickup in yields.

Not exactly positive, but it seems everyone is banking on Chinese authorities losing the market's game of chicken.


Yen Cross Tue, 11/14/2017 - 21:40 Permalink

  I'm seriously fucking perplexed at the yield curve of { T-5's &  T-10's}    We're talking 35-40 basis points difference, between five and ten year United States treasuries?  Something doesn't add-up !  Kinda like AMZN  [ PE-ratios]

BandGap Yen Cross Tue, 11/14/2017 - 21:44 Permalink

I would suggest you stop and rethink what is going on, perhaps turn the picture 90 or 180 degrees. Seriously. The paradigm didn't shift, it was replaced, and you need to re-establish your starting point.I would also suggest your starting point be from a very different perspective. Just a thought.Good luck.

In reply to by Yen Cross

jamesmmu Tue, 11/14/2017 - 21:48 Permalink

I think people will start panicking tomorrow. The past few days, they are just thought this is regular dip they should just go all in and buy the fucking dip. I can tell you that this dip will lead to CRASH!

slipreedip Tue, 11/14/2017 - 23:08 Permalink

I wouldnt get too self righteous about it.Lets face it, at this point the figures China comes up with are probably a more honest account than the ones America Produces.Lets not forget:SUB PRIME....a bunch of American banks and ratings agencies deliberately lying about the "quality" of an investment that created the GFC. America to China....please dont dump all our bonds....Thats the problem when someone is gargling your balls, its nice while its happening but you really need to trust they wont just bite them off.   

peterk Wed, 11/15/2017 - 06:08 Permalink

why is 4% the MAGIC number??.. because a  clown at ANZ says so?.NonsenseIf you know australian banking you know no one in their corporate side know squat about  diddly squat.4% aint special... nor is the chinese market special.It about  JAPANESE rates, the lender of FIRST RESORT. There market dictated all other arbitrage money market strategies. 

marcel tjoeng Wed, 11/15/2017 - 06:40 Permalink

  "but it seems everyone is banking on Chinese authorities losing the market's game of chicken."if you bet on this, you really must be an idiot.The Chinese Central Bank has employment and monetary security as its first priorities,unlike western central banks who up until QE ‘everywhere’, subjected themselves to the financial marketsIf the PBOC wants a purge of bad market credit, that is what they'll have, a purge of bad market credit