Chinese 10-year bond yields hit highest since November last year on hopes of stronger inflation data

The Chinese 10-year bond yields hit highest since November last year Wednesday on hopes of stronger inflation data. Also, as inflation is likely to rebound, we foresee that the PBoC’s monetary policy will remain neutral in 2017.

The yield on the benchmark 10-year bonds, which moves inversely to its price, rose 3-1/2 basis points to 3.12 percent, the long-term 30-year bond yield climbed 5-1/2 basis points to 3.49 percent and the yield on the short-term 3-year bonds bounced 2-1/2 basis points to 2.63 percent.

National Bureau of Statistics of China is expected to release it November inflation data on Friday at 01:30 GMT. The Friday’s consumer inflation is expected to increase 2.2 percent y/y, as compared to 2.1 percent in October. Additionally, producer prices rose 2.2 percent y/y, from 1.2 percent in the previous month.

“We expect China’s PPI to continue to edge up in H1 2017, followed by moderation in H2 when the base effect kicks in. For the year, CPI will remain relatively stable. However, onshore commodity prices will likely be volatile as the market will still be sensitive to speculative activity and regulatory tightening, on top of economic fundamentals,” said ANZ in its report.

Meanwhile, People's Bank of China sets the USD/CNY reference rate at 6.8808, weaker than Friday’s 6.8575. The China's blue-chip CSI300 index rose 0.39 percent to 3,472.63 points and the Shanghai Composite Index climbed 0.58 percent to 3,218.11 points.