QuickScan: Watching the Long End of the Curve

Last week, the PBoC drew attention to long-term bond yields in its monetary policy committee meeting. We think this policy communication, combined with recent macro data and our text-based indicators, suggests that headwinds to the recent bond bull market may be building.

Last week, the monetary policy committee of the PBoC cautioned that it was necessary to pay attention to changes in yields on the long end of the curve as the economy recovers, a first for the committee within the data range covered by our text-based indicators. This has triggered a debate among market watchers in China in recent days. 

Yields on long-term government bonds have fallen to historic lows in recent months, driven by weak economic sentiment, a lack of allocation alternatives, and speculation the central bank will lower rates further. The yield on ten-year government bonds has remained below the one-year policy rate (one-year MLF) for a second month in March.