The People’s Bank of China (PBOC) has recently made a significant decision to support the depreciating Chinese yuan. The central bank has announced that it will suspend government bond purchases for this month due to the high demand for bonds exceeding their supply.
This decision is seen as a response to concerns about falling bond yields and their impact on the Chinese yuan. The yield on China’s 10-year government bonds dropped below 1.6% at the beginning of this week, representing a decline of 100 basis points over the past year, according to TradingView data.
In contrast, the yield on US 10-year bonds has risen to 4.7%, reaching the highest level since November 2023. This has resulted in a wider gap between US and Chinese bond yields, which has strengthened the US dollar.
As a result, the Chinese yuan continues to decline against the US dollar, reaching a low of 7.32. This drop indicates the poorest performance in three months. Analysts point out that developments in the Chinese bond market, as well as concerns about trade tariffs associated with the upcoming Donald Trump administration, are putting pressure on the yuan.
Experts believe that a weakening yuan could accelerate capital outflows, with some of these outflows expected to flow into the cryptocurrency market. This could particularly boost demand for leading cryptocurrencies like Bitcoin (BTC), which is currently priced at $95,160, 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 spread between US and Chinese bonds may drive investors towards the US dollar and cryptocurrencies. Additionally, the depreciation of the yuan could impact China’s role in global markets.
