Chinese bonds advance among concern for slowing economy

Chinese government bonds are headed for a fourth weekly advance, with the benchmark 10-year yield dropping to a seven-year low, on concern the nation’s economy is slowing and as corporate failures increase.

The yield on the notes due May 2026 held at 2.69 per cent, the lowest since 2009, as of 1:28 pm in Shanghai, according to National Interbank Funding Centre prices.

The similar-maturity benchmark has declined seven basis points this week, the most since early July.

The 20 and 30-year sovereign yields declined to 3.10 per cent and 3.25 per cent, respectively, the lowest for both since Bloomberg started compiling the data in 2006.

Chinese sovereign bonds have benefited from overseas inflows, with foreign investors boosting their holdings of onshore debt by the most in two years in June, after the nation eased access to domestic markets.

Demand for the relative safety of government debt has been driven also by a rising number of company defaults, with a Chinese shipbuilder becoming the latest to renege this week.

Data released on Friday showed industrial production and fixed-asset investments both missed economists’ estimates.

"China's economic data are set to weaken further in the second half, which will favour sovereign bonds," said David Qu, markets economist at Australia and New Zealand Banking Group in Shanghai.

“Weaker growth outlook and increasing credit risks encourage flows to safe haven.”

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Bloomberg