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China steps up warnings about relentless bond-buying frenzy
(Bloomberg) — China has ratcheted up warnings against bond bulls in state media reports amid signs that the public debt-buying frenzy is returning.
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Bond funds will have difficulty sustaining returns that have exceeded 10% in some cases so far this year, the People’s Bank of China-backed Financial News said in a report on Saturday, warning investors not to bet on further falls in rates. of market.
“If bond yields rise in the future, products with long duration exposure will face greater risks of a pullback in capital gains,” the report said, citing unidentified people close to regulators.
In another report released on Friday, the newspaper said investors are underestimating factors such as a slight rise in prices that could alter the bond recovery. Furthermore, recent outflows of deposits from banks to asset management companies will only temporarily increase the funds’ cash flow and demand for bonds, he said.
The PBOC has repeatedly hinted at its unease about the bond rally in recent months as long-term yields hit two-decade lows. While lower yields mean cheaper borrowing costs for the economy, they can also destabilize financial markets and derail recovery if speculative trading grows.
There are few signs that enthusiasm is waning. A special 50-year bond auction last week drew solid demand, while 30-year government bond yields fell to their lowest level in more than seven weeks on Friday at 2.49%.
Verbal warnings could set a floor for 30-year yields around 2.4%-2.5%, but bond moves could still be biased lower in the absence of stronger measures to stem the recovery, strategists wrote. of Huatai Securities, including Zhang Jiqiang, in a note.
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