As Capital Economics’ James Reilly noted earlier this week, with FT Alphaville’s emphasis in bold below:
"One factor has been growing expectations among investors for policy rate cuts, given that the latest activity data remain weak and policy measures announced so far seem to have failed to boost growth expectations. This helps explain why short-dated yields have also tumbled, with the 2-year yield now down to ~1.0%.
But as we noted in December when the rally in China’s bond market gathered momentum, the size of the move at the long end of the curve suggests that investors are sceptical that the recent policy shifts will lead to a sustained recovery in China’s growth."
Reilly predicts that the 10-year Chinese government bond yield will slip further to 1.5 per cent by the end of the year. But this seems a bit hopeful at this stage.