China’s 10-year bond yields drop amid $1.4 billion debt refinancing program, more stimulus awaited

Yield for China's benchmark 10-year bonds have slid to their lowest in over a month after the government announced its 10 trillion yuan or $1.4 billion worth debt refinancing programme, Bloomberg reported.

This mostly came as traders were disappointed with the measures and are awaiting more stimulus amid China's wait-and-watch approach to Donald Trump's re-election in the United States, it added.

China's Debt Refinancing Programme — The Details

The announcement was made after the National People’s Congress Standing Committee meeting on November 8, to “underwhelmed” reactions, as per the report. The NPCSP is the executive body of China’s top legislature.

As per announcement, the programme will be financed through 2028, but nothing was detailed about future bond issuance, etc. Concerns have thus lingered that a surge in issuance may weigh on China’s debt market, with two trillion yuan ($280 billion) emerging as a key figure for traders.

China’s central and local governments have sold an average of about 1.8 trillion yuan of notes per month from January to October, according to Bloomberg calculations. After accounting for 1.1 trillion yuan already in the pipeline for the rest of the year, the market is ready for about 2.5 trillion yuan of additional debt sales for November and December. Anything above that is likely to stir volatility.

Markets Underwhelmed

Markets had “hoped for more policy support”, as per the report, amid US President-elect Trump's campaign promises to impose tariffs on Chinese goods.

According to the report, Societe Generale estimates about two trillion yuan of new supply for the rest of 2024 and 2025, while the Oversea-Chinese Banking Corp. expects the same amount of additional bond sales for the next 12 months, and ANZ Bank anticipated lower additional net debt sales of about 1.5 trillion yuan for the remainder of 2024.

“The market will need to see more than three trillion yuan to see a selloff,” Kiyong Seong, lead Asia macro strategist at Societe Generale in Hong Kong told Bloomberg. He added that approach would likely be long term rather than immediate bumps to stimulus.

Bond Markets Status

China’s sovereign bonds have been trading in a tight range since late September, after retreating from the highest level in about two decades after the stimulus blitz unleashed in late September. The 10-year yield has hovered between 2.1-2.2 per cent over the past month.

“I don’t expect any major fiscal policy rollout so soon as it will take time, and there is still a possibility for another People’s Bank of China rate cut before year end,” Lynn Song, Greater China chief economist at ING Bank told Bloomberg.

(With inputs from Bloomberg)