Over the month of April 10 -year Chinese onshore government bond yields rose by 40 basis points. This movement can be explained by a modest economic recovery and picked up inflation. “We believe, however, that China is still far away from fully stabilizing and that the Chinese government will need to continue to support growth through fiscal and monetary policy”, said our fixed income specialist Althea. She also mentioned, although it seems that an agreement between the US and China is going to be reached shortly, it is unlikely that the US will completely remove its punitive tariffs. In this context, Chinese government bond prices will be supported in the medium term.
In the long run, Chinese sovereigns should also benefit from a gradual opening of the Chinese bond market through increased foreign demand. We believe that foreign investors will continue to find these securities attractive because Chinese government bonds are less correlated to other major markets while at the same time offering higher risk-adjusted returns in a yield-starved environment.