China bonds drop as expectations of near-term rate cuts fade

SHANGHAI, – Chinese government bonds fell in early trade on Monday, sending 10-year yields to three-month highs, after policymakers tempered market bets of further interest rate cuts over the near term.

The most actively traded 10-year benchmark bond yield rose briefly to 1.8%, its highest level since December 12. The benchmark note, which has risen more than 20 basis points this year, was last trading at 1.775%.

China’s treasury yields had already climbed during the country’s annual parliamentary meeting last week as traders reassessed what a “moderately loose” monetary policy means.

Yields rise when bond prices fall.

China’s monetary policy is generally accommodative as the country has repeatedly cut rates and the amount of reserves banks are required to hold in the past few years, Pan Gongsheng, governor of the People’s Bank of China said last week.

The PBOC will cut interest rates and the reserve requirement ratio “at an appropriate time” based on domestic and international economic and financial conditions, said Pan.

The remarks, hinting that monetary policy is already loose and further easing will be dependent on macroeconomic factors, quelled some investor expectations of imminent rate cuts.

“Pan’s interpretation of monetary policy helped correct market’s misunderstanding of the ‘moderately loose’ policy. Even if there are no rate cuts in 2025, the current monetary policy is already moderately loose,” said analysts at Kaiyuan Securities in a note.

Ten-year government bond futures for the June delivery fell 0.4% on Friday for their largest one-day decline since September 2024. They were last trading flat.

China’s bond yields, which have been falling for years, took a sharper turn down since December when China said it would adopt a “moderately loose” monetary policy, the first easing of its stance in 14 years.

Market participants had believed that “moderately loose” implied that rates will be cut more deeply this year than in 2024, analysts at Kaiyuan Securities said in a note.

Thirty-year government bond yields were up 2 basis points to 1.995%.

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