Chinese sovereign bonds plunge on upbeat economic data; 10-year yields highest since November 2015

The Chinese sovereign bonds plunged Tuesday after recent economic data showed that the world’s second-largest economy is recovering from the previous slowdown. Also, Friday’s upbeat inflation data drifted investors away from safe-haven buying.

The yield on the benchmark 10-year bonds, which moves inversely to its price, rose more than 5 basis points to 3.18 percent (highest since November 2015), the long-term 30-year bond yield climbed 5-1/2 basis points to 3.54 percent and the yield on the short-term 3-year bonds bounced 2 basis points to 2.74 percent.

Retail sales in China surged during the month of November, beating what markets had initially anticipated. Retail sales, a gauge of private and government spending, rose 10.8 percent year-on-year, up from October’s 10 percent pace, data released by the National Bureau of Statistics showed Tuesday.

Additionally, industrial production in China jumped during the third quarter of this year, adding certainty over the world’s second-largest economy’s steady expansion after having suffered a volatile condition for two long years.

China’s Industrial production, a broad measure of factory output, rose at an annualised 6.2 percent, data released by the National Bureau of Statistics showed Tuesday. That exceeded expectations for an increase of 6.1 percent, which would have been unchanged from the October reading.

Moreover, the State Information Centre researchers in its latest report projected that the China's 2016 GDP to rise to about 6.7 percent; consumer inflation likely to climb about 1.8 percent next year, while the producer prices are expected to increase by 1.0 percent in 2017.

On Friday, consumer prices in China rose during the month of November, remaining slightly above what markets had initially anticipated. However, the figure remained below the upper limit of the government’s target range.

China’s consumer price index (CPI) advanced 2.3 percent from a year ago, after climbing 2.1 percent in October, data released by the National Bureau of Statistics showed Friday. A median estimate of economists called for a 2.2 percent year-over-year gain. Compared to October, consumer prices rose 0.1 percent, matching forecasts. That followed a 0.1 percent decline the previous month, the data showed.

In addition, the producer price index (PPI) soared 3.3 percent in the 12 months through November, well above forecasts calling for 2.2 percent. Producer inflation has now risen in each of the last three months after nearly five years of decline.

Lastly, markets will remain focused on the Federal Reserve last monetary policy decision for 2016, which is scheduled to be released on December 14. The Federal Reserve is expected to increase the target range of the key interest rate by 25 basis points to 0.50-0.75 percent, with a unanimous decision. Little change to the statement, though the Committee is likely to acknowledge that market-based measures of inflation compensation have risen further.

Meanwhile, People's Bank of China sets the USD/CNY reference rate at 6.8934, stronger than yesterday’s 6.9096. The China's blue-chip CSI300 index fell 0.07 percent to 3,406.73 points, while the Shanghai Composite Index traded marginally higher, rising 0.04 percent to 3,154.36 points.