The yield on Chinese ten-year sovereign bonds breached the 4 percent threshold for the first time in three years on Tuesday, as mass selling in the wake of disappointing economic data for October puts downward pressure on prices.
David Qu, market economist at Australia & New Zealand Banking Group Ltd. in Shanghai, said to Bloomberg that breaching the 4% will have an adverse impact on general sentiment which could potentially spread to corporate bonds.
In Qu’s opinion stricter financial regulation and tighter monetary policy from Beijing will likely contribute to an ongoing increase in bond yields next year.
Other analysts are less pessimistic, with Zhang Guoyu from Tebon Securities Co., Ltd. in Shanghai expecting the 10 yield to be capped at 4.1%.
According to Zhang authorities will not allow rising bond yields to generate headwinds for the economy by increasing corporate bond costs, and the central bank can be expected to inject liquidity should further panic selling ensue.