Chinese 10-year bond yields inch away to break June high of 3 pct, ideal to go short

The Chinese 10-year bond yields approached to break the 3 percent mark for the first time since June this year as the demand for safe-haven assets weakened on rising consumer inflation and signs of an improving economy.

The yield on the benchmark 10-year bonds, which moves inversely to its price, rose 3 basis points to 2.904 percent, the long-term 30-year bond yield climbed 2 basis points to 3.358 percent and the yield on the 5-year bonds bounced 1-1/2 basis points to 2.632 percent.

The People's Bank of China (PBoC) official press agency Xinhua News said that China is expected to keep prudent monetary policy and the possibility of rate, RRR cut is low. Said CPI growth may be around 2 percent this year.

In term of latest economic data, China’s industrial production expanded by 6.1 percent y/y in October at the same pace as September; estimates were for 6.2 percent y/y. Also, retail sales rose by 10.0 percent y/y in October after jumping 10.7 percent y/y in September; estimates were for 10.7 percent y/y. Additionally, fixed asset investment increased by 8.3 percent y/y in January-October after 8.2 percent y/y in January-September; estimates were for 8.2 percent y/y.

Also, speculation of a rise in government spending by the newly elected President of the United States, Donald Trump will spur the economic growth of the States, lending a helping hand to its inflation prospects as well, raising probabilities of a December interest rate hike by the Federal Reserve.

The world’s second-largest economy’s consumer inflation rose for the second straight month during the period of October. China’s consumer prices increased by 2.1 percent y/y in October after 1.9 percent y/y; in line with estimates, while producer price increased by 2.1 percent y/y in October after 0.1 percent y/y; estimates were for 0.9 percent y/y.

Meanwhile, People's Bank of China sets the USD/CNY reference rate at 6.8692, weaker than 6.8592 yesterday and injects 225 billion Yuan liquidity in reverse repos, including 85 billion Yuan in 14-day repos.

The China's blue-chip CSI300 index rose 0.20 percent to 3,436.54 points and the Shanghai Composite Index climbed 0.11 percent to 3,208.45 points.