More Capital Flight From Cina expected

 

Chinese debt sell-off likely to continue as yield advantage over US bonds disappears

• The yield on the 10-year Treasury note climbed to 2.78 per cent on Monday, surpassing the 2.75 per cent premium for China’s 10-year government bond
• Analysts warn that ongoing capital outflows coupled with growing depreciation pressure on the yuan may be destabilising for China’s financial markets

 

Capital outflows from China are expected to continue in coming weeks after an exodus of foreign funds from Chinese sovereign bonds in March, experts said, as the country’s yield advantage over US Treasuries disappeared for the first time since 2010.

On Monday, 10-year US yields climbed to 2.78 per cent, supporting the US dollar and surpassing the 2.75 per cent yield for China’s benchmark 10-year government bond.

“Looking back, whenever the interest rate gap between China and the United States rapidly declined … international capital flowing out of China would speed up,’ Liu Yaxin, a macro strategist at China Merchants Securities, said in a note on Tuesday.