China 10Y Yield Falls After PBOC Policy Shift

China’s 10-year government bond yield fell to around 1.64%, reversing the previous session’s advance, as the PBOC’s shift toward an overnight-rate-based monetary policy framework signaled a move toward lower short-term funding costs. Under the new framework, the central bank will conduct daily overnight reverse repo operations at a fixed rate of 1.25%, moving the overnight rate toward becoming its primary policy anchor and gradually phasing out the long-standing seven-day benchmark. The newly disclosed rate is below the existing seven-day reverse repo rate of 1.4% and broadly in line with market expectations and prevailing funding costs. Meanwhile, disappointing official PMI data underscored persistent weakness in economic activity. The manufacturing PMI fell to a three-month low of 49.3 in October 2026 from 50.1 in September, while the non-manufacturing PMI slipped to 49.7 from 50.2, marking its sixth contractionary reading this year.

China’s 10-year government bond yield rose toward 1.66%, although it remained near its lowest level since May 2025, after the People’s Bank of China kept its benchmark lending rates unchanged. The central bank kept the one-year loan prime rate at 3% and the five-year rate at 3.5%, holding both at record lows for a 17th straight month. The decision followed data showing China’s economy grew 4.5% year-over-year in Q3 2026, accelerating from a three-year low in Q2 and beating market forecasts. The rebound keeps Beijing’s full-year growth target of 4.5%–5.0% within reach, giving policymakers more room to delay broad-based monetary easing after introducing fresh targeted support measures. Separately, the PBoC said it would set up a swap facility to provide emergency liquidity support to non-bank financial institutions facing large-scale redemptions. Investors are also monitoring the Communist Party’s Fifth Plenum for policy guidance and further clarity on Beijing’s economic priorities.

China’s 10-year government bond yield rose to around 1.66% on Monday, rebounding from a more than one-year low in the previous session even as key economic data pointed to a recovery in growth momentum. China’s economy expanded 4.5% year-on-year in Q3 2026, accelerating from Q2’s three-year low of 4.3% and above market forecasts of 4.4%. Growth for the first nine months reached 4.6%, keeping the economy on track to meet the government’s full-year target of 4.5%-5%. Meanwhile, industrial output accelerated to 5.5% in September from 5.2% in August, while retail sales picked up to 1.1% from 0.4%. The surveyed urban unemployment rate also edged down to 5.2% from August’s five-month high of 5.3%. Investors will look to remarks from China’s top financial regulators at the Financial Street Forum in Beijing later today for fresh policy signals to support the economy, amid speculation about a potential shift in the policy rate benchmark from the current seven-day rate to an overnight rate.