(Yicai) March 18 -- China’s treasury bonds are still favored by risk-averse investors who are anticipating more interest rate cuts, despite an upswing in the stock market, an investment manager at a large Chinese fund told Yicai.

As China continues to chip away at the loan prime rate, which is the country’s benchmark lending rate, the yields of both the 10-year and 30-year treasury bonds have been dropping, pushing up the price of the bonds.

The yield of the 10-year treasury bond had tumbled 28.85 basis points as of the end of last week from the end of November to 2.34 percent, while the 30-year bond had slumped 37.8 bps.

After the central bank cut the five-year loan prime rate on Feb. 20, the 10-year bond rate slumped by 3 bps to 2.4 percent. And it could fall further to 2.3 percent, China International Capital said. Other institutions believe that it could even sink to 2 percent.

No significant improvement in economic data is one of the main reasons for the popularity of the 30-year treasury bond, said UK investment giant Schroders’ wholly-owned asset manager in China. Demand remains weak, judging from inflation in January and the purchasing managers’ index for manufacturing in February.

The real estate sector is not bouncing back, despite the loose monetary policy and sales of excavators, machines and robots are very unsatisfactory this year, perhaps due to the cold weather, Schroders Fund Management China said. Per capita consumption was also weak in the Lunar New Year holiday last month.

The bullish bond market has also caught the attention of foreign institutions. Overseas investors bought a net USD25 billion of Chinese mainland bonds last December, the fourth straight month of capital inflow. There were net foreign capital outflows from the bond market in the first three quarters of 2023 and in 2022.

There has been a surge in inquiries recently from foreign customers, including sovereign institutions and headline US hedge funds, said several sources with Chinese brokerage firms. Foreign institutions raised their holdings of yuan-denominated bonds for five straight months from September 2023 to January 2024.

Editor: Kim Taylor