Chinese commercial banks are increasingly buying government bonds as Beijing's stimulus efforts haven't been successful in boosting consumer or business loan demand. New yuan loans have dropped over 20% in the first 11 months of 2024, leading to a rally in Chinese sovereign bonds with yields hitting all-time lows. This trend is driven by economic uncertainty, muted investment, and cautious spending by consumers and businesses.
Chinese commercial banks have flocked to buying government bonds as Beijing's stimulus push has failed to spur consumers loan demand.
"The lack of strong consumer and business loan demand has led the capital flows into the sovereign bonds market," said Edmund Goh, investment director of fixed income at abrdn in Singapore. For this year, authorities have vowed to make boosting consumption a top priority and to revive credit demand with lower corporate financing and household borrowing costs.
The widening yield differentials between Chinese and U.S. sovereign bonds could risk encouraging capital outflows and put further pressure on the yuan that has been weakening against the greenback.
CHINA ECONOMY LOANS GOVERNMENT BONDS STIMULUS INVESTMENT YIELD CONSUMER SPENDING
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