CGB yields stays anchored across tenors, with 2Y yields hovering below 1.30%. 10Y yields have rebounded slightly to 1.76%. The latest Politburo meeting reinforces a steepening bias, highlighting a pro-growth policy mix that combines a more proactive fiscal stance with a still-accommodative monetary policy.
On the fiscal side, infrastructure investment is expected to accelerate, particularly to support “AI+” development. This includes electricity grids and data center projects. At the same time, elevated oil prices are prompting faster investment into renewable energy. Stabilising the property market remains a key policy priority, with Beijing continuing to advance urban renewal initiatives. Ongoing debt swaps between central and local governments are also expected to continue. Meanwhile, authorities are stepping up efforts to boost domestic demand and strengthen social welfare. Taken together, stronger policy support is pointing to higher government bond supply and firmer growth expectations, both of which are exerting upward pressure on long-end yields.
In contrast, the commitment to maintaining ample liquidity and a moderately loose monetary stance continues to anchor front-end rates. Overnight repo rates have declined to around 1.20%. The emphasis on curbing “involution” and supporting price levels is requiring further policy support. As of March, CPI and PPI have returned to positive territory, while industrial profits have risen by 15.5% YoY in 1Q. Policy easing will continue until price levels find their firm footings. RMB strength is providing additional room for easing, and we expect a 10bp cut in the 1Y LPR this year.
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