Chinese 10-year bond yields rises modestly ahead of Q1 GDP figure

The Chinese 10-year bonds yield is modestly firmer on Thursday as investors await Q1 GDP figure.  The yield on the benchmark 10-year bonds, which moves inversely to its price, moved tad higher 0.10 pct to 2.940 pct and 2-year bonds yield rose 1.45 pct to 2.449 pct by 0700 GMT.

The Chinese Q1 GDP is expected to decline to 6.7 pct as compared to 6.8 pct in the previous quarter. Also, the real GDP growth of China is likely to moderate because of its dependence on industry, which is struggling from excess capacity, according to Scotiabank. It is becoming very clear that China is shifting toward a more services-oriented and consumer economy, noted Scotiabank. The services sector contributes around 50 pct to the economic activity, while its pace of growth has surpassed that of the industrial sector by a broader margin.

“Due to these rebalancing dynamics, we expect Chinese output expansion to slow to 6.4pct this year and 6.2 pct in 2017 from 6.9 pct last year”, added Scotiabank.

Meanwhile, the Chinese economy is likely to be underpinned by monetary stimulus this year. The People’s bank of China loosened its policy in early March by lowering the reserve requirement ratio by 50bps to keep liquidity in the banking system and underpin credit growth and money supply.

“We expect further monetary accommodation to be implemented in the near term, particularly in the form of targeted policy measures, such as open market operations”, noted Scotiabank.

Lastly, we foresee that the bonds prices to rally further if Q1 GDP figures comes weaker than the market expectation, snapping the long rally in yield after strong trade figures on Wednesday.