Chinese bonds recover as central bank increases funding

Chinese government bonds are recovering from a recent selloff. This improvement comes after the People's Bank of China (PBOC) provided more short-term funding support. Yields on the benchmark 10-year bond fell by 3 basis points to 1.84%. This is the third day in a row that yields have declined. Additionally, futures for the 30-year bonds increased by as much as 1%. This is the largest gain since late December. The PBOC injected 973.2 billion yuan, or about $134.6 billion, into the market through policy loans in the past four days. This move ends two weeks of cash withdrawal and is the longest period of injections since late January. These actions indicate that officials are concerned about the risks associated with the recent drop in bond prices. Beijing is now focusing on lowering borrowing costs to help meet its economic growth goals. Analysts from Huaxi Securities noted that continued cash support from the PBOC could help restore confidence in the bond market. Earlier this year, China’s money market faced difficulties. Key short-term funding costs rose to their highest levels since June. The PBOC has not reduced interest rates or the reserve ratio required for banks since September. This year, China plans to increase the supply of new government bonds to 11.86 trillion yuan. This change follows a decision to raise the general budget deficit target to around 4% of GDP, a level not seen in over 30 years. Experts believe that the PBOC may become more comfortable with the yuan's value, allowing for looser liquidity in the future.