China Yield Curve Shows Economy Will ‘Turn’: Chart of the Day

By Belinda Cao and Lee Miller

Dec. 11 (Bloomberg) -- China’s bond yield curve has steepened in the past month after yields on debt due in 10 to 15 years climbed while those on shorter-dated notes slid, a sign the world’s fourth-largest economy may rebound next year.

The CHART OF THE DAY shows that while the one-year debt yield slid 94 basis points over the past month, 15-year yields climbed 18 basis points. The red line shows the curve yesterday and the green mark a month earlier. Since September, China’s central bank has slashed benchmark lending and deposit rates four times to spur the economy, which in the third quarter grew at the slowest pace in five years.

“The real economy will turn for the better from the second half of next year,” said Ye Ying, a bond analyst in Shenzhen at a securities unit of Ping An Insurance Group Co. “If the stimulating policies would work, the economy will renew growth and the central bank will shift back to a tighter money control.”

The demand for short-term securities by banks and mutual funds rose after the People’s Bank of China switched to a “moderately loose” monetary policy, increasing funding availability to aid businesses as the economy slowed amid a global recession. The government also announced a $4 trillion yuan ($583 billion) spending plan last month to spur domestic consumption.

China’s bonds have gained almost 10 percent, Asia’s third- best performing market this year, with the biggest proportion coming in the last three months, according to Asian local- currency debt indexes compiled by HSBC Holdings Plc.

The difference between the 10- and one-year bond yields increased yesterday to 167 basis points, the widest this year, from 61 basis points a month ago.

A yield curve charts bonds of the same quality but different maturities. Curve steepening occurs when rates on shorter-dated securities fall, those on longer-dated notes gain or when both happen at the same time.

To contact the reporter on this story: Belinda Cao in Beijing at lcao4@bloomberg.net