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China bonds rally as commodity rout eases inflation pressure

China bonds rally as commodity rout eases inflation pressure

FILE PHOTO: An employee counts Chinese 100 yuan banknotes at a branch of China Merchants Bank in Hefei, Anhui province June 21, 2013. REUTERS/Stringer

REUTERS: Chinese government bond yields fell to an almost nine-month low on Friday as a crackdown on commodity speculation cooled inflation worries.

The benchmark 10-year yield fell 4.1 basis points to 3.068per cent and are down 5.5 basis points for the week, according to Refinitiv data. That is the lowest yield since September and the sharpest weekly drop since December.

Yields fall when prices rise. A Beijing-based trader said a sharp drop in commodity prices since a government pledge to address big gains had tempered inflation expectations, which along with seasonal liquidity factors made bonds attractive.

China's cabinet said on Wednesday it will strengthen its management of commodity supply and demand to curb "unreasonable" price gains to prevent consumers from being hit, triggering a rout across industrial metals on Thursday.

Yields for five and 20-year tenors also dropped, touching their lowest levels since last August, according to Refinitiv data.

Foreign inflows also have supported Chinese government bonds, which have rallied this year while global bond markets have been routed because investors expect the pandemic recovery to eventually bring higher interest rates.

Foreign holdings of CGBs stood at a record 2.096 trillion yuan (US$326.13 billion) at the end of April, data from interbank market depository China Central Depository & Clearing Co (CCDC) showed, up 2.5per cent from the previous month.

(Reporting by Xiangming Hou and Winni Zhou; Writing by Tom Westbrook; Editing by Kim Coghill)

Source: Reuters

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