Chinese 10-year bond yields finally break 3 pct forecast mark, inch afar from 2016 high

The Chinese sovereign bonds were pushed lower across the curve Friday, following weakness in the U.S. debt market. Also, the 10-year bond yields finally breached our previous forecast of 3 percent mark, inching afar from 2016 high.

The yield on the benchmark 10-year bonds, which moves inversely to its price, rose 11 basis points to 3.02 percent, the long-term 30-year bond yield climbed nearly 9 basis points to 3.38 percent and the yield on the short-term 2-year bonds bounced 19 basis points to 2.66 percent.

The Chinese sovereign bonds have been closely following developments in the U.S. debt market. The United States benchmark 10-year Treasury yield climbed to 2.43 percent, highest since July last year.

The China’s official manufacturing PMI rose to 51.7 in November, from previous 51.2 reading in October. The rebound in the headline index was driven by a rise in new orders and fall in inventory. Also, non-manufacturing PMI bounced to 54.7 in November, from prior 54.0.

In addition, crude oil prices fell more than 1 percent as investor booked profit after a long rally post-OPEC deal. The International benchmark Brent futures fell 1.09 percent to $53.35 and West Texas Intermediate (WTI) dipped 0.80 percent to $50.65 by 04:30 GMT.

The Organization of the Petroleum Exporting Countries (OPEC) has agreed to cut production by roughly 1.2 Mb/d to 32.5, which equates to a 4.5-4.6 percent cut per member country. We believe the outcome is consistent with our view of what OPEC production levels were expected to be in 2017 irrespective of the deal reached yesterday, reported Barclays in its research note.

In other words, the meeting is highly unlikely to substantially affect the oil market balance.  Compared with our assessment of OPEC supply last month, we have adjusted our first-quarter of 2017 production estimate lower by 350 kb/d, which will result in a slightly steeper draw than our balances were forecasting, they added.

Lastly, investors will remain keen to focus on the next week’s economy data, highlighted by Caixin services PMI for November, trade balance, and consumer inflation and producer prices for November.

Meanwhile, People's Bank of China sets the USD/CNY reference rate at 6.8794, stronger than yesterday’s 6.8958. The China's blue-chip CSI300 index fell 0.98 percent to 3,530.22 points and the Shanghai Composite Index dipped 0.86 percent to 3,245.21 points.