China 10Y Yield Dips Near Two-Week Low
China’s 10-year government bond yield fell below 1.87% on Monday, hitting its lowest in nearly two weeks, as low inflation kept expectations for accommodative policy intact, while the market faced a record pace of sovereign bond issuance. December consumer inflation picked up to a three-year high, yet full-year inflation stayed near 16-year lows, and producer prices continued to decline, reflecting persistent softness in domestic demand. The modest rise suggests policymakers are likely to maintain an accommodative stance, using tools such as interest rate cuts and reserve requirement flexibility to ensure ample liquidity and support growth. Meanwhile, China plans to auction 522 billion yuan of bonds in the first half of January, the largest half-monthly supply on record, including a record two-year note sale. Investors are now closely watching the upcoming 10-year and 2-year auctions, which will also be offered in record sizes, to gauge demand amid heavy supply.
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