CNY rates found their footing ahead of the week-long National Day holiday, with 10Y and 30Y CGB yields edging up by 1-2bps to 1.68% and 2.11%, respectively. The slightly stronger-than-expected data provided a near-term floor for yields. However, ongoing monetary easing and the trade deal with the US suggest that rates should remain anchored going forward.
Official PMIs returned to the expansionary zone at 50.1 after two consecutive months of contraction. The production PMI jumped to a nine-month high of 51.7, largely driven by continued strength in technology-related sectors. Hi-tech manufacturing remained the outperformer, with its PMI rising to 52.5. The construction PMI also returned to the expansionary threshold for the first time since Dec-2025. The government’s push to accelerate investment under the Six Networks programme could provide further support to construction activity.
Meanwhile, Beijing announced several targeted monetary policies aimed at supporting the property and technology sectors. These measures should help keep CNY rates anchored.
First, the authorities introduced a nationwide mortgage interest subsidy of 1ppt, capped at CNY1mn per household over five years, for first-time homebuyers purchasing properties smaller than 120 sq m and priced below CNY1.5mn. This aims to alleviate excess housing supply in the outer areas of core cities and in tier-3 and tier-4 cities. However, the measure is unlikely to materially improve property transactions unless the labour market sees a more meaningful recovery. Developers are also unlikely to resume investment until existing inventories are digested. It currently takes more than 32 months to clear inventories, well above the government’s target of 18 months.
Second, the PBOC lowered the Pledged Supplementary Lending (PSL) rate by 25bp to 1.50%. Rather than a broad-based rate cut, the PSL reduction is targeted at supporting property and technology-related infrastructure projects, including shantytown redevelopment and the Six Networks programme. Thus far, the PSL balance only accounts for 5.1% of GDP. Third, the re-lending quota for technology and equipment upgrades was increased by CNY200bn to CNY1.4trn. Fourth, the PBOC added another CNY500bn to the refinancing quota for agriculture and small businesses, bringing the total to CNY4.85trn. The increase in refinancing quota should add fresh liquidity to the system.
On the external front, the trade deal with the US should provide only a marginal boost to overall GDP. The tariff reduction on USD30bn of goods represents just 7.2% of China’s exports to the US in 2025. More importantly, a further increase in the trade surplus is translating into excess saving amid weak domestic demand. This should continue to weigh on CGB yields. 
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