Chinese bonds slide after firm PMI figure

The Chinese 10-year bonds rallied on Wednesday after strong Chinese PMIs figures. The benchmark 10-year bonds yield, which is inversely proportional to the price of bonds, rose 0.66 pct to 2.91 pct and 3-year bonds yield jumped 0.13 pct to 2.32 pct.

After the release of the official Chinese PMIs for March last Friday, which suggested that business sentiment rebounded in both manufacturing and non-manufacturing sectors, today’s release of the Caixin services PMI brought a similar set of results. Indeed, the headline activity indicator rose from 51.2 to 52.2, the second strongest value since last summer. 

However, the details of the survey were rather mixed, with the outstanding business indicator remaining below 50 for a third consecutive month and the employment index falling by almost 2 .5 pts. In contrast, the new business gauge ticked up by 0.2pt to 51.9, the level matching the average of the last six months. Overall, while the March PMIs pointed to stronger economic momentum in China, their results probably should be taken with a pinch of salt, not least given that they are likely flattered by the return to work after the Lunar New year holiday in February.

We expect additional cautious monetary easing over the coming months, together with sizable fiscal injections, making Chinese bonds less attractive asset for investment.