Chinese government bonds inch higher as trade surplus narrows in December, Q4 GDP in focus

The Chinese government bonds traded modestly higher Friday, following a narrowing of the country’s trade surplus in December. Also, rising speculations that the economic growth will slow to 6 percent boosted demand for safe-haven buying.

Further, investors remain keen to focus on a host of economic data scheduled for release next week, like fixed asset investment, gross domestic product, industrial production and retail sales, which will decide on the future course of movement in bonds market.

The yield on the benchmark 10-year bonds which moves inversely to its price remained flat at 3.22 percent, the yield on the super-long 30-year bonds barely moved 1/2 basis point higher to 3.67 percent while the yields on the short-term 3-year bonds ticked down 2-1/2 basis points to 2.84 percent by 07:10 GMT.

China trade surplus narrowed to USD 40.8 billion in December from USD44.2 billion in November; estimates were for USD47.6 billion. While, imports rose by 3.1 percent y/y in December after 4.7 percent y/y in November; estimates were for 3.0 percent y/y, exports declined by 6.1 percent y/y in December after -1.6 percent y/y in November; estimates were for -4.0 percent y/y.

"Trump’s trade policy will likely motivate US businesses to move their manufacturing facilities away from China, although the latter’s efforts in promoting high-end manufacturing may offset part of the loss," ANZ reported in its latest research report.

We foresee that China is poised to abandon its 6.5 percent growth target sometime in the next two years as leaders push to contain asset bubbles and financial leverage. Lastly, China’s President Xi Jinping also confirmed in one of his meetings last month that the country may forego its 6.5 percent economic growth objective due to concerns about rising debt and an uncertain outlook for Asia’s largest economy.

Meanwhile, Shanghai Composite (SSEC) slipped 0.21 percent to 3,112.76 and Shenzhen Composite (SZSE) Index fell 1.21 percent to 10,008.30 by 07:15 GMT, while at 7:00GMT, the FxWirePro's Hourly Yuan Strength Index remained neutral at -38.72 (a reading above +75 indicates a bullish trend, while that below -75 a bearish trend). For more details, visit http://www.fxwirepro.com/currencyindex