China's bond yields rise despite concerns of deflation

Chinese bond yields have recently risen, but economists believe that deflation concerns could soon cause them to drop again. The increase in yields is not seen as a sign of economic recovery. Instead, it reflects ongoing deflationary pressures and a recent selloff in government bonds. The People's Bank of China has been reducing liquidity in the market to stabilize the yuan, while stock market movements have also influenced this trend. Despite the rise, borrowing costs in the broader economy are expected to remain low. Many commercial banks in China are offering lower rates on loans to boost consumer spending. However, loan demand from households and businesses remains weak. New household loans this year were the lowest for the January-February period in two decades. Beijing is actively encouraging banks to issue more consumer loans at reduced rates. Rates have already fallen significantly, down to as low as 2.58%. Expectations are that rates will continue to decrease due to ongoing weak credit demand. The government's goal is to stimulate domestic consumption amid looming trade tensions with the U.S. China is currently experiencing deflation, with consumer price inflation turning negative for the first time in over a year. The real estate market, a critical part of household wealth, is still struggling. Home prices fell significantly in February, and investment in real estate development has also dropped. The gap between U.S. and Chinese bond yields is narrowing, partly due to a rally in U.S. government debt. This situation has eased some downward pressure on the yuan. Even though the Chinese currency has recently gained some value against the U.S. dollar, it is still lower than it was before the recent election of U.S. President Donald Trump. The People's Bank of China has held its benchmark interest rate steady since September, despite speculation about potential cuts to stimulate the economy. As the U.S. Federal Reserve indicates possible rate cuts later this year, analysts warn that if China's economy continues to slow, bond yields could fall again.