ATF indices mixed as government bond yields continue to rise

Contrasting views in China’s economic outlook make interest rate levels difficult to predict

ATF indices mixed as government bond yields continue to rise
The ATF China Bond 50 Index lost 0.10%. 

(ATF) Mixed results were seen in the ATF China bond indices on Tuesday amidst an ongoing rise in Chinese sovereign yields.

The ATF China Bond 50, the flagship index, and the ATF ALLINDEX Financials, Local Governments and Enterprise gauges retreated 0.10%, 0.01%, 0.06% and 0.06%. Meanwhile, the ATF ALLINDEX Corporates measure closed unchanged.  

The ATF Corporates Index was unchanged. 

In contrast, China’s government bond yields rose across the board, with the 10-year treasury closing at 2.95%, and the five-year and one-year yields hitting 2.69% and 2.25%, respectively. All reached levels not seen since early February, when China began to drive borrowing costs to multiyear lows.

China’s benchmark lending rates were held steady on Monday for the second month running after the People’s Bank of China (PBoC) opted to keep borrowing costs on medium-term loans unchanged last week, as reported. This suggests that policy makers are adopting a wait-and-see approach amid tentative signs of economic recovery, according to Trading Economics.

The ATF Enterprise Index dropped 0.06%. 

An upgrade in the forecasts for China’s economic growth in a survey conducted by Bloomberg suggests some optimism that the country is heading towards a recovery. The median estimate of economists in the survey points to a 1.5% expansion of gross domestic production in Q2 from a year earlier, and a full-year growth projection of 1.8%.

This could mean that the country would avert a technical recession after shrinking 6.8% year-on-year in the first quarter, Bloomberg stated.

The ATF Financials Index lost 0.01%. 

This view contrasts with that of China Beige Book (CBB), whose survey of more than 3,300 Chinese businesses indicate that the economy contracted in the second quarter, signalling the start of a recession. Without the prospect of a greater recovery in global demand, the CBB estimates that China could be heading to a full-year decline.

The ATF Local Governments Index slide 0.06%.