Deflation data boosts China bonds

Japanese bond funds also lap up Chinese debt, extending run of gains on benchmark 

Deflation data boosts China bonds
The benchmark ATF China Bond 50 Index climbed 0.01%. Image: ATF 

(ATF) Chinese corporate and municipal bonds climbed amid data that showed China’s consumer price index had fallen for the first time in 11 years.

News that Japanese bond funds had been busy buying Chinese debt also lifted sentiment, sending the benchmark ATF China Bond 50 Index higher for a ninth consecutive day.

Chinese consumer prices fell for the first time since 2009 in November, led by declines in the cost of pork, the country's main protein staple, according to official data.

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The consumer price index dipped by 0.5% year on year, from growth of 0.5% in the previous month. Producer prices fell 1.5%, the 10th consecutive fall for factory gate prices, adding to signs that the economy continues to recover from the CovidD-19 pandemic.

Bond yields tend to rise during times of deflation because falling prices increase the value of the fixed payments on the securities.

Gains were led by the 7% bond of Jizhong Energy Group, and the 3.47% note of China Huaneng Group, which climbed 0.02 percentage points. The 6.12% paper of Xi’an Hi-tech Holding saw its yield fall nine basis points.

China’s riskier bonds are benefiting from increased exposure to overseas investors, who are attracted the notes’ relatively high yields amid record-low government interest rates.

The Enterprise, Corporate, Financial and Local Government sub-indexes also rose 0.01%.

Japanese bond funds have been snapping up Chinese assets, according to Japanese finance ministry data. In October they bought $822.6 million of China bonds. 

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