FX.co ★ China 10Y Yield Hits Two-Week Low

On Monday, China's 10-year government bond yield dropped to approximately 1.8%, the lowest in two weeks, as the People's Bank of China enhanced liquidity to alleviate seasonal funding pressures preceding the Lunar New Year. Last week, the central bank injected 600 billion yuan through 14-day repurchase agreements, aiding banks in bridging a temporary funding shortfall of about 3.2 trillion yuan, with projections to infuse up to an additional 3.5 trillion yuan before the holiday period. This infusion of cash into the banking sector heightened the demand for government bonds, exerting downward pressure on their yields. These liquidity injections are in response to cash withdrawals linked to holiday spending, substantial government bond issuance, and strong corporate demand for the yuan, all contributing to a tightened liquidity environment. Looking ahead, expectations include a 50-basis point reduction in the reserve requirement ratio and a potential interest rate cut within the year. Investors are keenly observing this week's inflation data for insights into forthcoming policy support from the People’s Bank of China.