The People’s Bank of China (PBOC) has recently made a significant decision to support the depreciating Chinese yuan. The bank has announced that it will suspend government bond purchases this month. This decision was made due to the demand for bonds exceeding their supply.
The declining bond yields pose a challenge to the Chinese yuan, and this decision reflects concerns regarding the impact of falling bond yields. 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 decline of 100 basis points over the past 12 months.
In contrast, the yield on U.S. 10-year bonds has risen to 4.7%, reaching the highest level since November 2023. This has widened the gap between U.S. and Chinese bond yields, which has strengthened the U.S. dollar.
The Chinese yuan continues to weaken against the U.S. dollar, falling to 7.32. This drop 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.
It is believed that a weakening yuan could lead to an acceleration of capital outflows, some of which may flow into the cryptocurrency market. This could particularly increase demand for leading cryptocurrencies like Bitcoin (BTC), which is currently priced at $95,160, thereby supporting the upward trend in the crypto market.
As China navigates through this transitional period, economic risks continue to put pressure on the yuan. The decline in bond yields and the widening gap between U.S. and Chinese bonds may attract investors towards the U.S. dollar and cryptocurrencies. Moreover, the depreciation of the yuan could impact China’s role in global markets.
