China bond yields hit record low after PBOC signals more easing

China bond yields fell to a record low after the People’s Bank of China on Tuesday announced that it would cut the reserve requirement ratio for banks.

Yield on China’s 10-year government bonds fell 3.75 basis points to 2.043%, data from LSEG showed, marking a record low. 30-year bond yields also dropped to a record low of 2.168%.

During a press conference, PBOC Governor Pan Gongsheng announced that China will be reducing the reserve requirement ratio or the amount of cash banks must hold by 50 basis point.

China’s onshore yuan weakened to 7.06 against the dollar, according to data from LSEG. 

This relatively uncommon high-level press conference was arranged following last week’s interest rate cut by the U.S. Federal Reserve, which initiated an easing cycle that may allow China’s central bank to lower its rates further to stimulate growth amid deflationary pressures.

In recent months, insurance companies and institutional investors have flocked to China’s bond market, partly due to limited investment opportunities available. The real estate market has declined, and the stock market has had difficulty bouncing back from several years of low performance.

Pan indicated that a 0.2-0.25% reduction in the loan prime rate was also on the table, though he did not clarify when this might happen or whether he was referring to the one-year or five-year LPR. Last Friday, the PBOC maintained its main benchmark lending rates at their current levels during the monthly fixing.

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