The People’s Bank of China (PBOC) has recently made a significant decision to support the devaluation of the Chinese yuan. The bank has announced that it will suspend the purchase of government bonds this month. This decision was made in response to the demand for bonds exceeding their supply.
The decreasing bond yields pose a challenge to the Chinese yuan. Experts point out that this decision reflects concerns about the falling bond yields and their impact on the Chinese yuan. At the beginning of this week, the yield on China’s 10-year government bonds fell below 1.6%. According to TradingView data, this represents a 100 basis point decline over the past 12 months.
In contrast, the yield on US 10-year bonds has risen to 4.7%, reaching the highest level since November 2023. This has widened the gap between US and Chinese bond yields, strengthening the US dollar. The Chinese yuan continues to depreciate against the US dollar, falling to 7.32. This decline indicates the lowest performance in three months. Analysts suggest that developments in the Chinese bond market, as well as concerns about trade tariffs related to the incoming administration of Donald Trump, are increasing pressure on the yuan.
A weakening yuan could potentially accelerate capital outflows, with some of this outflow expected to enter the cryptocurrency market. This could particularly boost the demand for leading cryptocurrencies such as Bitcoin (BTC) ($95,160), supporting the upward trend in the crypto market.
As China navigates through this transitional period, economic risks continue to exert pressure on the yuan. The decline in bond yields and the widening gap between US and Chinese bonds may drive investors towards the US dollar and cryptocurrencies. Furthermore, the devaluation of the yuan could impact China’s role in global markets.