(Bloomberg) -- Investors have yet to stem the selling in China's 10-year sovereign bonds, with their yield lingering near the highest versus comparable U.S. Treasuries since 2011.
This month's sell-off has increased the yield on Chinese notes by as much as 23 basis points, the third-worst performance globally behind Pakistan and dollar-denominated Brazil debt. The 2.75% rate on China's 10-year Tuesday was more than two percentage points above U.S. bonds.
“It doesn't make sense to see such a big spread,” said Hao Zhao, an economist at Commerzbank AG. To him, it shows market uncertainty about current monetary policy in China as the country's central bank and Ministry of Finance debate their next stimulus steps. Fresh efforts are expected to be announced at China's annual parliamentary meeting, which starts Friday.
In addition to looming central government debt sales, Chinese sovereign bonds have been pressured by the supply of higher-yielding local-government bonds possibly setting a monthly record in May. But some investors see a relative bargain, with more than $11 trillion of debt globally still sporting negative yields.
“The valuations of CGBs are even more attractive now, with yields remaining much higher than in other major markets,” said Cary Yeung, head of greater China debt at Pictet Asset Management. Meanwhile, “the economy is not out of the woods yet,” and with interest rates set to remain low on accommodative monetary policy, “we expect further downside in yields after new supplies are absorbed.”
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