Chinese Government Bonds Grow Amid Weak Economic Data

The yields of China's government bonds are growing. The increase in profitability can be explained by the sale of sovereign bonds after weaker than expected macroeconomic data and tightening of liquidity in the financial system. China's 10 year yields jumped to a 3-year maximum, approaching 4%.

China's industrial production increased by 6.2% year-on-year in October, but growth was weaker than the previous value of 6.6% and the forecast of economists 6.3%. National Bureau of Statistics of China also reported that retail sales increased by 10.0% yoy in October after an increase of 10.3% in September. Economists had expected growth of 10.4%.

M2 money supply grew +8.8% y/y in October, slowing from 9.2% in September. Despite the unexpected decline, the set of credit data largely reflects the government's intensification of regulatory measures and a reduction in the share of borrowed funds. It is expected that the People's Bank of China (PBOC) will continue neutral monetary policy for the remainder of this year and in 2018.