(Bloomberg) -- China’s 10-year sovereign bonds fell, extending their biggest weekly drop in a decade, as investors pivoted toward risk assets on expectations a widespread stimulus blitz will revive economic growth.
The yield on the benchmark debt surged five basis points to 2.22% on Monday morning, hitting its highest level since August. That followed a 21 basis points jump in 10-year yields last week, the biggest weekly gain since late 2014.
The selloff underscores how Beijing’s stimulus push last week, which included interest rate cuts and a pledge of fiscal support, is driving a rethink of the China playbook. Investors have piled into bonds and dumped stocks this year on doubts about China’s ability to hit its growth target, and economists had called for more stimulus to get the economy back on track.
“The better risk sentiment may reduce asset allocation into CGBs especially at the long-end, where yields appear low compared to economic growth prospects,” said Frances Cheung, head of foreign-exchange and rates strategy at Oversea-Chinese Banking Co.
Cheung expects the yield of China’s 10-year bonds to fluctuate in a range of 2.05% to 2.25% in the near term.
The sharp move in bonds came before onshore Chinese markets shut Tuesday for a week-long public holiday.
China’s economy has underwhelmed investors’ expectations this year, leading some economists to predict that growth will undershoot Beijing’s target of around 5%. That weighed heavily on the stock market, and pushed investors to the safety of bonds before last week’s stimulus push.
--With assistance from Qizi Sun.
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