Chinese bonds gain as consumer inflation remains steady in April

The Chinese government bonds strengthened Tuesday after data showed that China’s April consumer-inflation rate held steady for 3rd straight month, giving the People's Bank of China (PBOC) more breathing space to ease monetary policy as the world's 2nd biggest economy fights weak demand. The yield on the benchmark 10-year bonds which moves inversely to its price moved lower 2bps to 2.909 pct and the yield on the 2-year bonds ticked down 1bps to 2.593 pct by 0545 GMT.

The China recorded headline CPI inflation of 2.3 pct y/y in April, on par with market expectations and unchanged from March. On monthly basis, CPI inflation decelerated 0.2 pct as compared with a decline of 0.4 pct in March. Individually, food prices were up 7.4 pct y/y and dropped 1.4 pct m/m in April, whereas non-food prices climbed 1.1 pct y/y. Moreover, the China’s core inflation was also unchanged from March at 1.5 pct y/y, whereas on month-on-month basis it was 0.2 pct. On the other hand, the China’s producer prices shrank 3.4 pct y/y, and rebounded by 0.7 pct m/m in April. Furthermore, the latest April trade data on Sunday showed that exports declined unexpectedly 1.8 pct y/y, estimates were for zero growth, after increasing by 11.5 pct y/y in March.

“Lower CPI--with inflation below 3 pct and even below 2.5 pct, should allow the PBOC to continue easing and called the rate “good news” for the economy.” said Shen Jianguang economist at Mizuho Securities Asia Ltd. to WSJ.

Meanwhile, Shanghai Composite (SSEC) fell 0.06 pct to 2,830.44 and Shenzhen Composite (SZSE) Index rose 0.05 pct at 9,795.04 by 0600 GMT.