(Yicai) Feb. 10 -- The yield on China’s 10-year government bonds has fallen below 1.8 percent for the first time since November, as traders price in growing expectations for monetary easing ahead of the Lunar New Year holiday.

The 10-year treasury bond yield fell to 1.793 percent at the lowest point yesterday. Bond prices and yields move in opposite directions.

The rise in bond prices rests on two factors, according to Ming Ming, chief economist of Citic Securities. First, profit opportunities in equities and commodities have faded, and second, China’s central bank has signaled a more accommodative stance, lifting expectations for monetary easing.

Both short and long sellers in the bond market are adding to their positions around the Chinese New Year, and that the battle between bulls and bears is approaching a “test moment,” according to Lu Pin, chief fixed income analyst at Zhongtai Securities.

From the perspective of long sellers, continuous bond buying by major banks is one of the key factors driving the prices of treasuries with tenors of 10 years or less, Lu noted.

Interest rates of AAA-rated interbank certificates of deposit with different maturities have been steadily declining since the Central Economic Work Conference in December in a sign the authorities are ramping up counter-cyclical easing, said Zhang Xu, chief fixed income analyst at Everbright Securities, asking that policy rate cuts are conceivable within the next two to three months.

As the Lunar New Year is just around the corner, and considering that the central bank will seek to maintain stable liquidity and many institutions prefer to hold bonds over the holiday for coupon income, a strong willingness to hold bonds through the break should support the pre-holiday market, according to a recent report by Golden Credit Rating International.

This year’s Lunar New Year holiday, known as the Spring Festival in China, will run for nine straight days from Feb. 15 to 23. That is one day more than in previous years, making it the longest on record.

At the same time, volatile external factors and significant swings in equities and commodities mean risk appetite has not fully recovered, which should continue to be supportive for bonds, the also report said.

Some analysts believe the tug-of-war in the bond market may shift back to fundamentals, with data on January’s consumer and producer prices due this week. Pre-holiday stock market volatility and inflation concerns may be the main obstacles to a further decline in bond yields, said Liu Yu, chief fixed income analyst at Huaxi Securities.

Editor: Tom Litting