Chinese government bonds fell on Monday and 10-year yields climbed to three-month highs after comments from the central bank governor tempered market bets of imminent interest rate cuts.
The most actively traded 10-year benchmark bond yield rose briefly to 1.8%, its highest level since December 12. The benchmark note, which has risen nearly 20 basis points this year, was last trading at 1.7925%.
That builds on gains for yields last week during China annual parliamentary meeting.
Pan Gongsheng, governor of the People's Bank of China (PBOC)said China's monetary policy is generally accommodative as the country has repeatedly cut rates and the amount of reserves banks are required to hold in the past few years.
The PBOC will cut interest rates and the reserve requirement ratio (RRR) "at an appropriate time" based on domestic and international economic and financial conditions, said Pan.
Pan's comments helped the market reassess what constitutes 'moderately loose' policy, analysts at Kaiyuan Securities said in a note. "Even if there are no rate cuts in 2025, the current monetary policy is already moderately loose."
China's bond yields, which have been falling for years, have taken a sharper downward turn since December when China said it would adopt a "moderately loose" monetary policy, the first easing of its stance in 14 years.
Market participants had previously believed that "moderately loose" implied that rates will be cut more deeply this year than in 2024, Kaiyuan Securities analysts said.
Ju Wang, head of Greater China currency and rates strategy at BNP Paribas, said recent gains for China stocks had given the PBOC some leeway to delay a rate cut.
Even so, Wang expects the PBOC to either cut policy rates or the RRR in the second quarter, if not this month.
Goldman Sachs analysts maintained their forecasts for two 20-basis-point policy rate cuts and two 50-basis-point RRR cuts this year, but acknowledged that these actions could be later than first thought.
Ten-year government bond futures for the June delivery were last trading flat after falling 0.46% on Friday to mark their largest one-day decline since September 2024.
Thirty-year government bond yields were up 1.25 bps to 1.9875%.
Yields rise when bond prices fall.
