China's tumbling rates widen US yield advantage to biggest in 22 years
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SHANGHAI, Dec 12 (Reuters) -Chinese long-term yields fell to record lows on Thursday driven by easing expectations, widening the yield disadvantage against the 10-year U.S. benchmark to the biggest in 22 years and piling more pressure on the yuan.
The yield on China's 10-year treasuries CN10YT=RR fell as much as 2 basis points to 1.805%, an all-time low. The 10-year bond futures CFTc1, which move inversely to yields, hit a record high.
That widened the spread against U.S. 10-year yields US10YT=RR to nearly 250 basis points, marking China's biggest yield disadvantage since June, 2002.
China's bond market has seen a record-breaking rally this year as Beijing cut interest rates and pumped liquidity into the banking system to stimulate a weakened economy dogged by persistent deflation.
Bond prices powered ahead this week after China on Monday pledged to adopt an "appropriately loose" monetary policy next year, the first easing of its stance in some 14 years.
"Lower risk-free interest rates in China will nudge people to hunt for higher yields, potentially increasing investment in dollar wealth management products," said Yuan Tao, analyst at Orient Futures.
Outbound investment and yuan depreciation could feed each other, he said.
Chinese money invested in onshore dollar investment products has doubled over the past year to 281.9 billion yuan ($38.82 billion), according to consultancy Puyi Standard.
Sources told Reuters on Wednesday China's top leaders and policymakers are considering allowing the yuan to weaken in 2025 as they brace for higher U.S. trade tariffs.
The yuan CNY=CFXS has slumped more than 2% against the dollar since Donald Trump's sweeping election victory early last month. Trump threatened additional tariffs of 60% or more on Chinese goods during the campaign.
The Chinese currency was steady at 7.2626 per dollar around noon on Thursday, after a newspaper affiliated to China's central bank said late on Wednesday that the foundation for a "basically stable" yuan remains "solid."
China's 30-year yield CN30YT=RR also hit a record low of 2.035% on the day, as analysts expect more rate cuts next year to push long-term yields lower.
($1 = 7.2625 Chinese yuan renminbi)
U.S. yield advantage over China widens https://tmsnrt.rs/4g7WZZu
Reporting by Shanghai newsroom
Editing by Shri Navaratnam
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