China 10-Year Government Bond Yield Breaks Below 1.60% as Bond Rally Extends

The break below 1.60% matters less as a level than as a signal: the rally is being driven by a combination of weaker equities, lighter supply and repositioning around the policy rate anchor, meaning duration demand is being reinforced from several directions at once. This affects domestic institutions with mandated allocation needs and anyone using Chinese yields as a read on growth expectations. The open question is whether the year-end supply-demand improvement cited by participants persists into the new year, since that, rather than the headline yield, determines whether the long end keeps grinding lower.